BoC expected to keep rate unchanged

BoC expected to keep rate unchanged

That the Bank of Canada is unlikely to announce an interest rate increase at its scheduled announcement this week, according to a Reuters poll, comes as no surprise to brokers.

“I haven’t expected the BoC to move the overnight rate until the end of next year anyway,” said David Larock, a Toronto broker with TMG Integrated Mortgage Planners. “I don’t claim to have a crystal ball but I would be surprised if rates don’t stay low for even longer than the poll suggests.”

Increasing the Canadian overnight rate while the US rate remained low would push the Canadian dollar up and be detrimental to the national economy, according to Larock, especially those regions dependent on exports.

The survey of 42 economists and strategists predicts rates will not rise until the second quarter of 2013, pushing their previous predictions forward from last month’s expectation of a hike in the first quarter of 2013.

The results were similar to a February 17 poll of Canadian primary dealers, which forecast the next rate hike would happen in the third quarter of 2013.

The Bank of Canada's target for the overnight rate - its main policy tool - has been at 1 percent since 2010.

Economists expect the central bank to align itself with the US Federal Reserve, which recently announced it is likely to hold rates near zero until 2014.

A Reuters poll earlier this month also indicated the Canadian dollar is expected to stay on par with the US dollar for the rest of 2012.

While the U.S. economy is showing signs of progress, Canada's has stumbled recently. Canada added just 2,300 net new jobs in January and saw its unemployment rate rise to 7.6 percent from 7.5 percent in December.

Growth also slowed, as the latest gross domestic product numbers showed Canada's economy contracted slightly in November, defying forecasts for a modest increase.