The Bank of Canada will raise interest rates sometime in the fourth quarter as a sturdy, if unspectacular, domestic recovery offsets global headwinds, according to a Reuters survey.
The median forecast of a July Reuters poll of 37 economists and strategists pushed back previous rate hike forecasts of a third-quarter increase projected in a May poll. The central bank is now seen holding its key policy rate at one per cent in the third quarter.
The median forecast also showed that the bank would end the fourth quarter with the key rate at 1.50 per cent, down from 1.75 in the previous poll.
The rate was seen ending 2012 at 2.50 per cent, down from 3 per cent.
Analysts said a rate increase would likely send the Canadian dollar - already a point of concern for the central bank - higher, which could result in another rate hike pause.
The currency is above parity with the U.S. dollar, trading around $1.04.
The poll, which showed 16 of 37 forecasters expect the central bank to start raising rates in the fourth quarter, echoed the results of a poll of primary dealers conducted June 29, which found most had pushed back their forecasts as well.
Two primary dealers - the institutions that deal directly with the central bank as it carries out monetary policy - have pushed their targets into 2012.
"It's a tough call, but our view is they're likely to wait until early next year and then gradually raise interest rates at that point," said Adrienne Warren, a senior economist at Bank of Nova Scotia.
"Certainly, the path will be contingent on the performance of the U.S. economy ... There's so much uncertainty out there in the economic outlook right now. Sentiment can change quite easily over the next few months in either direction."
In the poll, five of 11 primary dealers surveyed expected the first rate hike to come in the third quarter, compared with 10 in May's poll. Four predicted a hike in the fourth quarter.
BMO Capital Markets pushed its expectations for the first increase to the fourth quarter from the third. Desjardins Securities was unavailable as it was currently revising its forecasts.
Overnight index swaps, which trade based on expectations for the key central bank policy rate, showed investors see only a slim chance of a rate hike this year.
One concern for the Bank of Canada is recent data that showed inflation rose to 3.7 per cent in May, its highest level in more than eight years.
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