14 March 2011

As a result, by the year end 2011 the loonie can rise to US1.08¢.

2. The global market will remain unstable

The recent turmoil in North Africa and the Middle East, as well as the terrible disaster in Japan, will justify the central bank’s decision not to raise rates for now.

3. The economic decline is still significant

Although the fourth quarter showed the better-than-expected growth data, still the recovery paces are not so good. In addition to it, there’s a risk to demand growth, caused by the government spending cuts, high commodity prices and new mortgage rules implementation.

4. There will be more tightening rules

There will be more tightening rules: a higher Canadian dollar, tougher mortgage financing rules (taking effect this month), the government stimulus withdrawal; and, in time, higher rates on consumer loans.

5. Careful U.S. approach

The Fed chairman, Ben Bernanke, shows quite cautious approach to rate hikes, forecasting the next rate increase only in the next year. And if Canada raises rates now, it will only push loonie higher.

6. The inflation targeting policy

It’s unclear what the BoC’s inflation-targeting regime will look like in the end of the year. “It means we don’t know at what inflation point the central bank will raise rates”, – Scotiabank said.

7. The future federal & provincial elections

It’s also unclear whether the parties go on an election campaign once the federal budget is presented on March 22.  According to Scotiabank, in the last 20 years the central bank has increased rates only once during an election campaign – in 2006. Then among the main reasons the strong economy was named.

Leave a Reply

Your email address will not be published.