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No BoC Rate Hikes in the "Medium Term"

Rate-Predictions When the Bank of Canada predicts interest rate direction, people listen.  It’s predictions yesterday were especially worth noting.

The BoC expects three things, among others, to occur over the next 2 years:

  1. Slowing exports will put a “significant drag” on Canada’s economy.
  2. Today’s relatively higher interest rates will stall consumer and business demand.
  3. Inflation will fall towards the Bank’s 2% target.

These expectations are highlighted in the BoC’s latest monetary policy report

If true, interest rates will remain the same or lower, at least for the “medium” term (as the BoC puts it).  Although many pundits are translating this wording into “through 2009.”

But, the BoC’s report isn’t all dovish.  They do acknowledge risks that could push rates higher.  Yesterday’s report, for example, states, “The main upside risk is that excess demand in the Canadian economy could persist longer than projected.” 

In sum, however, their bias is still slightly “tilted” towards lowering rates.