interest rates on way up: bmo
Stronger economic growth, propelled by a commodity boom and an improving U.S. job market, will prompt the BankofCanada to begin rate hikes in July to a two per cent level by the end of the year and 3.5 per cent in late 2012, economists at BMO Capital Markets said Wednesday in their updated outlook.
The investment bank’s economics team projects first-quarter annualized growth of 4.4 per cent, helping to power the Canadian economy to a three per cent advance in 2011 — an improvement from the 2.7 per cent gain BMO Capital Markets had forecast back in January. By year’s end, the country’s unemployment rate should drop to 7.4 per cent from its present 7.8 per cent level.
“The combination of low interest and high commodity prices are fuelling the domestic economy,” said Sal Guatieri, senior economist at BMO Capital Markets.
Consumerspending is expected to ease from 2010 levels, to three per cent, but he said exports and a 12.8 per cent surge in nonresidential business investment would pick up the slack.
Canada also stands to benefit from an improving U.S. economy, poised to expand 3.2 per cent in 2011, as the job market begins to turn around based on March data, he added. Monthly job gains in the 200,000-plus range could boost confidence among U.S. firms and households, translating into increased spending and investment.
Risks to the outlook include soaring oil prices, which could deliver a “serious blow” to the North American economy; Europe’s sovereign debt woes, with Portugal on the brink of an international bailout and concerns mounting over Spain; and any further fallout from Japan’s earthquake and subsequent nuclear crisis.
The Bank of Canada, which issues its next rate decision on April 12, is likely to upgrade its outlook for 2011 based on the data that has emerged, Guatieri said. In its last outlook tabled in January, the central bank expected 2011 growth of 2.4 per cent, which is now well below estimates in the four per cent and five per cent range.
The combination of low interest and high commodity prices are fuelling the domestic economy Sal Guatieri,