Economists at TD Bank Financial Group are projecting the next rise of the Bank of Canada’s overnight rate will start in mid-2011, a full quarter later than its previous forecast.
In a report released Friday, the bank said it did not think the Bank of Canada would move rates higher until the U.S. Federal Reserve had completed its second set of quantitative easing measures aimed at injecting more cash into the economy to boost growth.
The Fed recently announced plans to purchase $600 billion in U.S. Treasuries, making $75 billion in purchases per month over the next eight months.
TD said, “it seems unlikely that the Bank of Canada would hike rates while the Fed is easing, especially with Canadian real GDP growth trending in the lackluster 1.5% to 2% range. This would light a fire under the Canadian dollar, which would further deteriorate export recovery.”
It noted the short-term prospects for manufacturing shipments remain weak with new and unfilled orders retreating in recent months, which does not bode well for manufacturing’s contribution to GDP in the fourth quarter.
Given the new timeline of increases to the overnight rate, TD forecasts the Canadian dollar would likely rise and remain above parity until the end of the first quarter of 2011, after which, it will ebb down below parity.