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Interest Rates Seen Lower

Falling-Interest-Rates Inflation is down and rate cut hopes are up.

In fact, inflation is at a 5-month low–thanks in large part to the 1% GST cut.  Meanwhile, the Bank of Canada’s new governor, Mark Carney, is acknowledging further U.S. threats to Canada’s economy.

This has RBC expecting a 1/2% rate cut March 4 and another 1/2% cut by mid-2008.  TD, among others, is also predicting a 1/2% reduction March 4.

“The core (inflation rate) is nicely below the Bank of Canada’s worry level,” says Scotia Capital’s Steve Butler. “It points to a path of rate cuts coming up…”

Despite the above, Carney expresses worry that foreign demand may soon heat up our commodity-heavy economy.  This view coincides with that of others (like CIBC’s Benjamin Tal) who feel Canada’s economy may surprise people late this year.