No rate hikes for 2011?

good article on interest rates for the rest of this year

http://propertywire.ca/blogs/bloggers/leslies-blog/item/137-title-no-rate-hikes-for-2011?.html

A recent report from TD Economics has just pushed back forecasts for interest rate hikes during 2011.

Many economists, TD included, believed that interest rates would begin to climb in mid-2011. However, economists have adjusted their earlier report in its Quarterly Economic Forecast regarding its outlook on monetary policy and interest rates.

Currently, TD does not expect the Bank of Canada to hike rates at any point in 2011, but rather they would start to increase in 2012 with the overnight rate finishing off 2012 at the 2.00% mark.

The TD report goes on to say that traditional thinking about monetary policy doesn’t bode well in this out of the ordinary recovery – the global economy hasn’t recovered at the pace forecasted at the onset.

There are a number of key factors considered by the TD economists when making their conclusions about interest rate movement. Firstly, they believe that inflation potential is well anchored and we have a reputation as an inflation fighter. As the output gap minimizes, the risk of inflation is limited since the markets will determine the price of commodities.

Secondly, there is a whole lot of risk at this point. Even though Canada doesn’t have a great deal of exposure to the real risky countries in Europe, the meltdown would have its effect in North America. The biggest concern is the recovery in the US. Right now there is a huge inventory of homes and many more on the brink of foreclosure, so it appears that the market will be flush for quite some time. The US Government has quite the juggling act with ensuring it doesn’t drive up inflation while still trying to stimulate the nation’s economy. Obviously, this has a far greater direct impact on Canada versus the rest of the world.

High energy prices as of late are a big concern to dragging down growth while heating up inflation, which is related to the unrest in the Middle Eastern nations. Factor in inflation in emerging countries like China and the natural disasters in Japan; it poses a barrier to progressing economically.

All of this uncertainly has lead to the conclusion by TD economists. When the Bank of Canada does move forward with rates, they still have mitigating factors to include and any slight changes could alter their path. These economists figure that once we reach the 2.00% mark we may pause there for a breather and take a look around to see how everyone else is faring. This gradual approach will also limit the upward pressure of our very strong loonie.

Like any economists prediction, it has a short shelf life because assumptions may prove incorrect and factors may change out of nowhere. There are many factors like those mentioned in the report that could change in a snap and force industry players to re-align their forecasts. If we start to fall behind inflation then we may have to kick into gear and start edging rates up.

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