BMO Financial Group - Outlook 2005(1.1Mb pdf File) - Boardwalk REIT

13
Though rates will rise in both Canada and the US...
Canada and US Overnight Rates
%
5.0
FORECAST
4.0
employment growth rate which is
expected to be 1.3% in 2004 compared
to an annual average of 1.9% since the
2000/01 slowdown. This in turn will
minimize the improvement in the
unemployment rate projected to be 7.0%
at the end of 2005, little changed from
the 7.1% forecast for the end of 2004.
3.0
2.0
1.0
0.0
2003:Q1
Q3
...a superior Canadian trade performance...
Current Account Balance
% of GDP
5.0
3.0
1.0
-1.0
-3.0
-5.0
-7.0
2000:Q1
2002:Q1
...will provide underlying support to the C$.
Exchange Rate
US$/C$
0.80
0.76
0.72
0.68
0.64
US
0.60
2003:Q1
Canada
Q3
Canada
US
2004:Q1
2004:Q1
2004:Q1
Q3
FORECAST
2006:Q1
Q3
2005:Q1
-10.0
-20.0
-30.0
-40.0
Q3
2006:Q1
Net External Indebtedness
% of GDP
0.0
Q3
-50.0
1991 1993 1995 1997 1999 2001 2003 2005
2005:Q1
Q3
US
Canada
FORECAST
2006:Q1
Q3
FCT
…with unemployment down modestly
With the unemployment rate still slightly
above a so-called “inflation-safe” range of
6.8% to 7.0% for much of the forecast,
labour markets will continue to exert
some, albeit limited, downward pressure
on inflation. This, in conjunction with the
expected rise in productivity and the
earlier appreciation of the Canadian
dollar, will moderate the rise in core
inflation back to the Bank of Canada’s
mid-point target of 2%. This target is
expected to anchor inflationary
expectations through the forecast period.
Monetary policy to tighten gradually…
Interest rates for most of this year have
remained highly accommodative to
ensure that the economic recovery is
sustained. With clear indications by
September that such was the case, the
Bank of Canada started to unwind this
stimulus raising the overnight rate by 25
basis points to 2.25%. Tightening should
continue over the next eighteen months.
The higher rates are intended to keep the
rate of expansion sustainable and the
rate of inflation low. The lack of current
price pressure will, however, allow the
Bank of Canada to maintain a moderate
pace of tightening. We expect the
overnight rate to finish 2004 at 2.75%, to
end 2005 at 3.50%, and to achieve a
near-term peak in mid-2006 at 4.50%.
…sending market interest rates higher
Expectations of tightening policy will
pressure long-bond yields higher through