Market Economics | Interest Rate Strategy - BNP PARIBAS ...

ate hikes probably bringing further currency
appreciation.
Overall, the BoC revised up its GDP forecast to 2.4%
for 2011 and 2.8% for 2012. This outlook is
dependent on the export recovery. We forecast 2.0%
GDP growth in 2011 and 3.1% in 2012.
Meanwhile, overall inflation has remained subdued
despite the relatively robust recovery, and inflation
expectations well anchored. Canada has remained
largely immune to the global commodity price
pressures, with low pipeline pressures in industrial
prices and shelter prices declining.
Assumptions
The Monetary Policy Report released on Wednesday
made the following key assumptions for the
economic outlook: i/ USDCAD at parity; ii/ energy
prices in line with recent futures prices; iii/ relatively
steady prices for non-energy commodities; and, iv/
supportive global credit conditions.
In addition, the BoC assumes growth in the US of
3.3% (up from 2.3%) in 2011 and 3.2% (down from
3.3%) in 2012. Note: we expect the US to grow 2.6%
in 2011 and 3.1% in 2012.
A delay to hiking is in the cards…
The BoC statement suggests further hikes are not
imminent, but are not too far off either. We expect the
tightening cycle to begin in late Q2 or possibly later,
with the policy rate reaching 2.00% by the end of the
year and 3.00% by end-2012. However, the pace of
appreciation of the CAD and the strength and
contour of US growth will determine the schedule for
normalising rates.
Bricklin Dwyer 20 January 2011
Market Mover
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