Global uncertainty to keep rates low: Kinch

“It is very clear that the BoC is waiting for a signal from the economy to raise rates, but it seems that as soon as they think they have one, something gets in their way,” he told CRE Online.

 

The faltering U.S. recovery, the catastrophe in Japan and the crisis in the Middle East all have adversely affected the Canadian export market, he said, and as a result overall gross domestic product (GDP) remains weak.

 

“This trend will result in less pressure to increase rates when the BoC meets again on May 31,” Kinch said. “Any further incident that negatively impacts Canadian exports will delay further rate hikes till the fall. And if I'm a betting man - that's what I'd bet on.”

 

The Canadian economy will slow by the second quarter of this year with GDP growth predicted to be half what it was in the first quarter, according to the BoC.

 

The BoC forecasted in its April monetary report that economic growth for the first three months of 2011 will reach 4.2%, then drop to 2% by the second quarter. Previously the bank had predicted the economy would accelerate in its January forecast.

 

Overall, the bank projects that the economy will expand by 2.9% in 2011 and 2.6% in 2012. In comparison, the BoC predicts the world economy will grow by 4.1% in 2011 and 3.9% in 2012. Much of that growth will be in China, however, with most estimates showing its gross domestic product will grow 9.3% in 2011 and 8.6% in 2012.

 

On April 12, BoC Governor Mark Carney announced the bank would hold its key interest rate at 1% because of a soaring loonie and weak export market. 

 

“This leaves considerable monetary stimulus in place, consistent with achieving the 2% inflation target in an environment of material excess supply in Canada,” Carney said. “Any further reduction in monetary policy stimulus would need to be carefully considered.”

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