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No change in interest rates likely for months
Last Updated: Monday, January 15, 2007 | 1:49 PM ET
CBC News
Economists expect the Bank of Canada to leave interest rates unchanged Tuesday morning, and many say no rate cuts are likely for several months.
That may seem surprising, given that Canadian economic growth has slowed markedly since the Bank of Canada released its last Monetary Policy Report in October.
The central bank forecast at that time that fourth-quarter GDP would ring in at an annual rate of 2.8 per cent. Now, economists are saying Q4 growth will be lucky to come in at 1.5 per cent.
But experts point out that the U.S. economy has been stubbornly resilient in the face of a weak housing market, and Canadian employment figures show that the economy is continuing to produce a surprisingly healthy number of new jobs.
"Don't expect the statement [that accompanies the rate announcement] to rock the boat," predicts Marc Lévesque, TD Securitiess chief economics strategist.
"The Bank [of Canada] will not be in any hurry to signal a rate cut — we continue to expect the bank to remain on the sidelines until April."
CIBC World Markets economists also expect the central bank to refrain from cutting rates until the second quarter of 2007.
The C.D. Howe Institute's Monetary Policy Council is unanimously urging the Bank of Canada to make no changes in the bank's key overnight rate on Tuesday or at the next meeting in March.
"Among the points emphasized in the discussion were the likelihood that weakness in U.S. domestic demand was bottoming out, that growth overseas looks solid and that the Canadian economy was regaining momentum after weakness late in 2006," an institute statement said.
Some observers also said the recent fall in the loonie to the 85-cent US range will give Canada's exporters a boost, making an immediate rate cut less necessary.
"The Bank [of Canada] is universally expected to keep rates steady, and they are also likely to maintain the same neutral tone," Doug Porter, BMO Nesbitt Burns's senior economist, said in a morning commentary.
The bank's key overnight rate has been at 4.25 per cent since May 24, 2006, when it bumped up the rate by a quarter of a percentage point.
The bank's interest rate announcement will be made at 9 a.m. ET Tuesday. |
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