Bank of Canada to stay on sidelines until 2018: Reuters poll

Thu Dec 1, 2016 9:31am EST
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By Anu Bararia

(Reuters) - The Bank of Canada will maintain its wait-and-see stance for more than a year, a Reuters poll found, even as the specter of lackluster export growth becomes more entrenched following Donald Trump's U.S. presidential election win.

All but one of the 40 economists polled this week in the first full Reuters BoC survey since the election said the bank would hold rates at 0.50 percent at its next policy review on Dec. 7, as it gauges the impact of Trump's campaign promises.

Trump has vowed to renegotiate the North American Free Trade Agreement and economists said that, coupled with the lack of clarity on the effects of tighter mortgage laws and government's infrastructure spending, will ensure the bank holds rates.

The consensus view in the latest poll was that rates will stay put until the first quarter of 2018, when the BoC will hike them to 0.75 percent. Forecasts have oscillated between the first and second quarters for several polls now.

"It is a bit premature to suggest that the Bank of Canada's inclination to raise rates has changed materially at this juncture," said Nick Exarhos, an economist at CIBC Capital Markets, noting that fourth-quarter growth is expected to slow.

He added that the ensuing trade uncertainty given Trump's protectionist views will likely dampen investment, possibly growth and may eventually prompt the BoC to cut rates.

The price of oil LCOc1, a key Canadian export, remains depressed compared with levels a few years ago, even though OPEC's decision on Wednesday to cut output for the first time since 2008 gave it a big boost.

When asked what posed the biggest risk to the economy next year, a little less than half of the 24 poll respondents picked weak export growth, while one-quarter said a housing market correction was the top threat in 2017.   Continued...

A sign framed by maple leaves is pictured in front of the Bank of Canada building in Ottawa July 17, 2012. REUTERS/Chris Wattie