BoC seen delaying rate hike until Q3 of 2012: Reuters poll

Tue Oct 18, 2011 11:32am EDT
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Andrea Hopkins

TORONTO (Reuters) - The Bank of Canada will keep rates on hold until the third quarter of next year amid slow global growth and the risk that Europe's debt crisis will linger on, according to a Reuters survey released on Tuesday.

The Reuters poll of 40 economists and strategists showed the median forecast for the next interest rate increase was pushed back by three months from the second-quarter of 2012 projected in an August poll.

Analysts said Canada's central bank need to raise borrowing costs less than they previously thought, because the domestic economy has not recovered as strongly as expected and the European debt crisis still is dampening the global outlook.

"There is slightly more slack left in the Canadian economy than where it was presumed a couple of months ago, based on how the second quarter panned out," said Mark Chandler, head of Canadian fixed income and currency strategy at Royal Bank of Canada.

"We've got a better handle on the size of the rebound in Q3, and it was maybe a bit weaker than people thought."

Forecasts for official interest rates at the end of 2012 are also down to a median target of 1.5 percent from 1.75 percent in the August poll, suggesting one fewer rate increase next year than was previously expected.

Of the 35 forecasters who contributed to both polls, 26 downgraded their forecast in one or more quarter and seven downgraded their forecasts for all five of the quarters forecast. Just two upgraded their forecast for the second half of 2012.

Only two of the respondents predicted a rate cut, a possibility that has been priced in by overnight index swaps for some time.   Continued...

<p>A cyclist passes the Bank of Canada building in Ottawa July 19, 2011. REUTERS/Chris Wattie</p>