16 march 2010

On March 2 the key rate remained at 0.25% level. The bank announced that it won’t raise rates before July. The only reason for the hike is the current inflation change.

There are a lot of signs of a quick recovery: the information about faster-than-expected growth, the employment report results, which showed the economy created 20,900 jobs in February.

“These are the indicators of the future rates hike after the conditional commitment expires,” said Mohammed Ahmed, a rates strategist at Canadian Imperial Bank of Commerce in Toronto.

According to Bank of Nova Scotia estimates, interest-rate markets are pricing in a 22% chance of a 25-basis-point rise at the Bank of Canada’s June 1 meeting. Speaking about the July meeting they are pricing in a 100% chance of a 25-basis-point increase (plus a 3% chance of an additional 25 basis points).

And according to Scotiabank, at the end of February markets were pricing in a 72% chance of a quarter-point increase in July.

“The contracts are showing that after their commitment ends, rates are going to rise for 25 basis points, or maybe even for 50,” said David Love, a Montreal-based trader of interest-rate derivatives at brokerage Le Groupe Jitney Inc

Judging by the results of the median of 11 estimates, analysts expect the central bank to raise its overnight rate to 1.5% by year-end.