STIMULUS BUDGET COULD LEAD TO RATE HIKE IN THE FALL
A stimulus budget from Canada’s new Liberal government, combined with a modest recovery in oil and non-commodity exports, makes it likely the Bank of Canada’s next move will be an interest rate rise rather than a cut. Economists said the $29.4 billion deficit for the coming fiscal year, equal to about 1.5 per cent of GDP, diminished but did not eliminate the likelihood of another rate cut. However, a poll of Canadian primary dealers — the institutions that deal directly with the BOC at debt auctions — showed they expect the central bank to hold steady at its next policy meeting on April 15 and through 2016. They forecast the next step will be a hike in late 2017 or in 2018. Even before the budget, the oil-price recovery and some encouraging economic data had traders reconsidering the likelihood of more easing, which would have pushed the main policy rate back to the post- crisis low of 0.25 per cent. The implied probability of a rate cut this year has collapsed to 21 per cent from 87 per cent a little more than one month ago.