Bank of Canada to keep rates on hold, wait for stronger U.S. : poll

Fri Nov 27, 2015 11:38am EST
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By Anu Bararia

(Reuters) - After shocking markets with an interest rate cut at the start of the year, the Bank of Canada is expected to end 2015 on a more sedate note, holding rates steady through next year and waiting for better U.S. growth to provide a boost, a Reuters poll found.

The central bank is almost certain to keep rates unchanged at 0.50 percent on Dec 2 at the conclusion of its policy meeting, the poll of over 40 economists taken Nov 23-26 showed.

That steady policy stance stands in contrast to the U.S. Federal Reserve, which is now widely expected to raise its key interest rate for the first time in nearly a decade just weeks later.

While the U.S. economy is performing well, Canada's economy slipped into a mild recession in the first half of the year following a crash in the price of oil, a key export. The United States is by far Canada's biggest trading partner.

But Canada's growth is expected to roughly meet the Bank's forecast of 1.5 percent in the fourth quarter, and is likely to pick up pace from there, so long as the United States keeps performing well.

"I would characterize the U.S. recovery as reducing the likelihood that the Bank of Canada will need to cut rates again," said Andrew Kelvin, senior rates strategist at TD Securities, who expects no change in rates until June 2017.

The central bank cut rates twice this year to offset the negative effects of the oil price plunge. Oil prices have fallen by more than half since June 2014 and the Canadian dollar is on track to mark its worst year since the 2008 financial crisis.

BoC Governor Stephen Poloz has said the weaker currency should lead to stronger U.S. demand for Canadian exports and boost the Canadian economy.   Continued...