TORONTO (Reuters) - The Bank of Canada will hold interest rates steady in the second half of this year and raise them only cautiously late in 2016, according to a Reuters poll of primary dealers.
The central bank cut its benchmark interest rate for the second time this year on Wednesday as Canada’s oil-exporting economy shrank under pressure from an oil price plunge.
The Reuters survey of nine of Canada’s 11 primary dealers - the institutions that deal directly with the Bank of Canada - showed most expect the bank to keep its benchmark rate at 0.5 percent at least part way through next year.
Two of the dealers said the bank’s next move would be another cut, and others acknowledged that could be a sizable risk to their forecast for a hike.
“They left with an easing bias and the markets could well try to price in some probability of a rate cut as soon as September,” said Mark Chandler, head of Canadian fixed income and currency strategy at Royal Bank of Canada.
To justify another cut “you’d have to have either a really sharp downturn in U.S. growth, or significant weakening of oil prices,” he said.
Toronto-Dominion Bank’s chief Canada macro strategist, David Tulk, said TD is not expecting a hike until the second half of 2017, and put the chance of another cut in 2015 at 30 percent.
The median forecast is for rates to end 2016 at 0.75 percent, a retreat from the 1.25 percent rate forecast by dealers after the bank last cut rates in January.
In explaining its latest move, the central bank said it was puzzled by stubbornly limp exports. While recovery has been delayed, it is still expected to come eventually on growing U.S. demand.
“I do think that the export numbers will look a bit better for the third quarter,” said Avery Shenfeld, chief economist at CIBC.
Polling by Alastair Sharp and Solarina Ho in Toronto and Anu Bararia and Krishna Eluri in Bengaluru; Editing by Peter Galloway