Bank of Canada's interest rates on hold until 2013

Great news for homebuyers and owners as Desjardins Securities predicts that the next Bank of Canada rate hike will not come until mid-2013, saying the Federal Reserve’s pledge to hold U.S. rates near zero will take Canada’s own rate path “hostage”.

Desjardins had previously expected the central bank to raise interest rates in December this year, and its new call puts them among the most bearish among Canadian primary dealers on rate expectations.

The Fed is likely to be on hold until 2014, well beyond its recent pledge to keep interest rates low for at least another two years, Desjardins said.

“We just expect the recovery to be slow through 2012 and 2013,” said Jimmy Jean, an economic strategist at Desjardins Capital Markets in Montreal.

Also, the Bank of Canada might be reluctant to push its interest rates too far above U.S. levels, because the rate premium would drive the Canadian dollar even higher, putting more pressure on Canada’s export-oriented economy.

“The Fed’s policy will effectively take the BoC’s monetary policy hostage via the dollar and trade vulnerabilities. We don’t expect the BoC to be able to move until the middle of 2013 as a result,” Jean said, adding he now expects Canada’s economy to grow 2.1 percent this year, compared with a previous view of a 2.7 percent gain.

Source: Thomson Reuters 2011

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