Bank of America Says No Canada Rate Increase Until 2016

Bank of America Corp. today moved back its prediction for when Canada’s central bank will raise its policy interest rate to the first half of 2016, the same day the International Monetary Fund said an increase is expected late next year.

“We continue to doubt the BoC view that the return to export led growth is right around the corner,” Joshua Dennerlein, an economist in New York, said in an e-mailed research note, referring to the Bank of Canada. His previous prediction was for a rate increase in late 2014.

Dennerlein is the second economist in a week to say Governor Stephen Poloz will keep the key rate at 1 percent until 2016, following Scotiabank vice-president of economics Derek Holt. Earlier today the Washington-based IMF said a rate increase is expected next year as growth accelerates to 2.2 percent from 1.6 percent.

Bank of America today also pared its 2014 Canada growth forecast to 1.8 percent from 2.2 percent and said “with domestic sources of growth tapped out, we expect only a limited acceleration in Canada’s growth rate over the next several years.”

Senior Deputy Governor Tiff Macklem said last week a shift in the drivers of growth to business investment and exports from consumption is “elusive,” and cut the bank’s growth forecast for the second half of this year. Statistics Canada today said the nation’s trade deficit widened to C$1.31 billion ($1.26 billion) in August, exceeding all 20 economist forecasts in a Bloomberg survey that had a median estimate of C$700 million.

Dennerlein also said the central bank will probably move back its outlook for when inflation will return to the 2 percent target to late 2015 or the first half of 2016, when it makes its next interest rate announcement Oct. 23. The Bank of Canada’s forecast in July was for inflation to be 2 percent in the second quarter of 2015.