The Bank of Canada may hold off on hiking rates until the U.S. Federal Reserve decides to raise its own, argues Fidelity Investments, giving brokers yet more food for thought on when their market will finally cool down.
“With sluggish growth in Canada, I would not expect the Bank of Canada to be hiking rates through 2014,” Brian Miron, a portfolio manager with Fidelity Investments, said at the Bloomberg Canadian Fixed-Income Conference in New York earlier this month. “You can make the argument that with fundamentals being softer in Canada, the Fed might be the first to hike. You can see that case being made.”
Bank of Canada Governor Stephen Poloz has state that the overnight interest rate will remain at one per cent – the mark it has been at since September 2010 – until the Canadian market stabilizes.
“As long as there is significant slack in the Canadian economy, the inflation outlook remains muted, and imbalances in the household sector continue to evolve constructively, the considerable monetary policy stimulus currently in place will remain appropriate,” he said in early September. “Over time, as the normalization of these conditions unfolds, a gradual normalization of policy interest rates can also be expected, consistent with achieving the two per cent inflation target.”
Poloz had previously stated that the interest rate will be increased once inflation reaches the bank’s target of 2 per cent. But with Fidelity’s recent speculation, will that, alone be enough?
“Inflation will be back to our target of 2 per cent (and) as I have said before, policy rates in Canada will be higher than they are today,” Poloz said. “We can expect that short-term interest rates, as is normal, will be above inflation (and) long-term rates will settle into place along a natural, upward-sloping yield curve.”
The Federal Reserve has also held its overnight lending target for a number of years – since April 2008 – allowing it to fluctuate between zero and 0.25 per cent.