Dealers push back rate hike forecasts: Poll

Fri Oct 7, 2011 7:12pm EDT
 
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By Ashleigh Patterson and Andrea Hopkins

TORONTO (Reuters) - Canada's primary dealers now expect the Bank of Canada to raise interest rates in September 2012, signaling a gloomier outlook as concerns over stalled global economic momentum persist.

The median forecast in a Reuters poll on Friday was for an interest rate hike in September, compared with expectations of a July tightening in a similar poll on September 7.

Forecasts for the Bank of Canada's key policy rate at the end of 2012 also trended down, with the median falling to 1.5 percent from 1.75 percent just a month ago. That implies one less quarter-point rate hike next year.

Primary dealers are the institutions that deal directly with the Bank of Canada as it carries out monetary policy.

None of the dealers expect a rate cut, even though overnight index swaps are pricing in this possibility.

Instead, seven expect a hike at some point next year. Another four dealers predicted the bank will take a cue from the U.S. Federal Reserve, keeping rates steady until 2013.

U.S. short-term interest rate futures traders see a better-than-even chance a rate hike will not come until the Fed's November 2013 policy-setting meeting.

"The short-term priority for the Bank (of Canada) will be to support the economy in the face of brisk global headwinds. By support I mean keeping interest rates historically low," said Sal Guatieri, senior economist at BMO Capital Markets.   Continued...