Canada rates seen on hold, but more economists expect cut: Reuters Poll

Wed Jul 8, 2015 1:22pm EDT
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By Anu Bararia and Leah Schnurr

BENGALURU/OTTAWA (Reuters) - A series of weak economic data that suggests Canada may already be in recession has prompted a growing minority of economists to predict the central bank may cut interest rates again, possibly as soon as next week, a Reuters poll has found.

The Bank of Canada shocked markets in January with a 25 basis point rate cut that it called "insurance" against the impact of a steep drop in the price of oil, a major export.

So far, most forecasters continue to say that will be all, with the next move a 25-basis-point rate hike in late 2016. But there is a strong possibility that the bank's next move will be to lower rates, with 12 of 35 economists surveyed predicting the bank will announce a 25-basis-point cut in the benchmark rate to 0.5 percent in its policy statement next week.

In the previous Reuters poll in May only five economists forecast a rate cut at either of the bank's two policy statements in the current quarter. The next one is in September.

"The lower starting point (for second quarter growth) will probably prompt them to ease monetary policy once again," said Nick Exarhos, economist at CIBC, who expects a cut on July 15.

"They will want to insulate the economy a little bit more."

The bank has maintained the view that the worst hit to the economy would be front-loaded in the first quarter, with growth then regaining momentum from growing U.S. demand for non-energy exports.

But second-quarter figures so far do not look encouraging, with a contraction in gross domestic product in April and exports dropping in May. Analysts put a median 50 percent probability that the economy shrank during the three-month period just ended.   Continued...