Canadian interest rates: The guesswork continues

For those of you who still place some importance in the interest rate predictions among economists, we deliver the latest updates on where the Bank of Canada’s key rate is headed. Of course, these updates come after the central bank left its rate unchanged on Thursday (no big surprise there) and stated that the “need to withdraw monetary stimulus has diminished.”

CIBC World Markets: “While we continue to expect that a resumption of moderate-paced growth in the latter half of this year will keep the Bank from cutting rates, it’s now likely that the Bank will only begin tightening in the third quarter of 2012. We still expect the overnight target to end 2012 at 1.50 per cent, but with the two 25 bps rate hikes now coming six months later than we had previously anticipated.”

Toronto-Dominion Bank: “All told, today’s statement confirms our view that a downgraded growth outlook both at home and abroad, combined with worsening sovereign debt risks, necessitates an exceptionally accommodative monetary policy stance for longer than previously thought. We don’t expect the Bank to raise rates until the latter half of 2012, which implies a flat overnight rate for almost two years – an unprecedented situation which underscores the fragility of the economic recovery.”

BMO Nesbitt Burns: “Once again, the tug-of-war between offshore and internal factors is holding the Canadian economy and Bank of Canada policy in limbo. We still judge (as does Carney & Co.) that at least modest growth will resume in H2 and push the Bank’s policy bias back to the tightening side (with modest rate hikes a 2012 H2 affair).”

Deutsche Bank: “Given the Bank’s increased focus on the downside risks to its near term projection for growth due to slower global/US growth, its elevated concern about the European sovereign debt crisis, its more moderate outlook for both core and headline inflation and its acknowledgement that there is a reduced need to withdraw policy stimulus, we expect that it will remain on hold through the remainder of 2011 and into the first quarter for 2012.”