Poll: Bank of Canada to keep rates on hold, await fiscal stimulus push

Thu Mar 3, 2016 9:21am EST
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By Anu Bararia

(Reuters) - The Bank of Canada will likely keep interest rates on hold next week as the prospect of larger fiscal stimulus from Ottawa later this month reduces pressure on it to cut, a Reuters poll of economists found.

The central bank chopped rates twice in 2015 to 0.50 percent to cushion a reeling economy from the negative impact of a crash in the price of oil, a major Canadian export, which triggered a brief recession in the first half of the year.

With oil prices still broadly depressed and dragging on growth, the Bank of Canada is not expected to raise rates until the end of 2017, the poll of 42 analysts taken this week found. Rates are seen rising to 0.75 percent by the fourth quarter of 2017.

The BoC is likely to wait until Prime Minister Justin Trudeau's first budget is announced on March 22 before charting a course of action, economists said.

"Domestic conditions have not deteriorated further, and with the federal budget coming in a few weeks, the Bank of Canada will take a pause this time," said Jean Paul Lam, professor of economics at the University of Waterloo.

Trudeau's Liberal Party has promised to boost economic growth through infrastructure spending and is likely to announce a larger deficit than initially anticipated.

A minority of economists in the poll said even that may not bring about a material turnaround in Canada's fortunes until next year and further monetary easing is warranted, perhaps as early as April.

"Some form of monetary easing will likely be necessary at some point," said Sebastien Lavoie, assistant chief economist at Laurentian Bank.   Continued...

Bank of Canada Governor Stephen Poloz speaks during a news conference in Ottawa, Canada, January 20, 2016. REUTERS/Chris Wattie