First Bank of Canada rate hike draws closer on fiscal stimulus: Reuters poll

Thu Apr 7, 2016 10:01am EDT
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By Anu Bararia and Leah Schnurr

BENGALURU/OTTAWA (Reuters) - The Canadian economy's strong start to the year allied with fiscal stimulus from the country's new Liberal government will allow the Bank of Canada to start raising interest rates sooner in 2017 than had been previously expected, a Reuters poll found.

Economists unanimously expect the central bank to keep rates at 0.5 percent at its meeting on April 13, but think it will likely revise its economic forecasts higher for this year.

Bank officials have said they will factor into their new projections the expected impact from the C$29.4 billion ($22.4 billion) in deficit spending unveiled by the government last month for this year.

A series of stronger-than-expected economic data this year has driven some to believe the economy may already be outpacing the bank's forecast of 1 percent growth in the first quarter, despite the latest disappointing trade numbers.

This brought the possibility of a rate hike closer by a quarter, with the majority of more than 40 economists polled by Reuters forecasting the bank would raise rates in the third quarter of 2017 versus the fourth quarter in a poll taken in March.

"Recent stronger growth reduces the chance of a rate cut," said Benjamin Reitzes, senior economist at BMO Capital Markets.

Still, at 7.3 percent, the unemployment rate is too high for the bank to raise rates, said Reitzes, who sees the first rate hike occurring in the third quarter of next year.

After raising rates for the first time in nearly a decade in December, even the U.S. Federal Reserve is going slow on its path of policy normalization.   Continued...

A woman walks past the Bank of Canada office in Ottawa, Canada July 16, 2015. REUTERS/Chris Wattie