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TD Economics expects the Bank of Canada to maintain the current key interest rate of 0.75 per cent until the final quarter of 2016.
In their latest report on the Canadian economy, the bank says that “as oil prices begin to recover towards the end of this year and into 2016, business and consumer sentiment should follow suit,” boosting economic activity back above two per cent in the second half of this year. And that, TD says, “should allow the Bank of Canada to keep the overnight rate as is through 2015 and into 2016.”
The Canadian economy contracted by 0.1 per cent in January, beating market expectations for a 0.2 per cent drop. But despite the stronger-than-expected showing, TD says the latest economic numbers still amounted to “a weak reading” and that the underlying details suggest “further weakness may be in store.”
Indeed, the impact of falling oil prices is likely to become much more apparent going forward, and TD expects growth to be relatively flat in the first quarter. This is in line with recent comments from the Bank of Canada Governor Poloz, who suggested that the impact from the oil price shock would be more front-loaded, hitting growth hardest during the first half of the year. Governor Poloz’s comments this week also pointed out that first quarter growth will look “atrocious.”
TD’s full analysis of the latest economic numbers can be found here.