Canada private infrastructure backing could lower rate cut risk

Mon Feb 22, 2016 4:45pm EST
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By Fergal Smith

TORONTO Feb 22 (Reuters) - Adding private sector investment to government infrastructure projects aimed at reviving Canada's struggling economy would reduce the odds of another Bank of Canada rate cut and support the country's ailing currency, market strategists say.

Canada's Liberal government reiterated on Monday that it will stick with plans to invest in infrastructure projects to help counter weaker-than-expected growth.

Earlier this month, the government confirmed it is talking to the country's largest pension funds about co-investing, which could spur even greater spending.

The Bank of Canada would view enhanced fiscal stimulus "as an unambiguously positive development," said Andrew Kelvin, senior rates strategist at TD Securities.

The central bank has already lowered rates to just 0.5 percent in an effort to kick-start the economy, and any further rate cuts would have a negative impact on the Canadian dollar, which hit a 12-year low earlier this year.

"The more private sector investment you can draw into the stimulus plan, the better for the economy," said Sal Guatieri, senior economist at BMO Capital Markets.

The central bank said in January it had not incorporated federal stimulus in its growth projections, a move some saw as "passing the buck" to the federal government to boost spending.

"It's a no-brainer," said Benjamin Tal, senior economist at CIBC Capital Markets, who favors projects that give more growth per dollar and add to productivity, such as transit. He noted private sector involvement would generate "even a better multiplier."   Continued...