Monetary policy

Although some currency traders had begun to price in a cut in official shortterm rates in Canada in the first quarter, as of late December players have shifted their view on monetary policy expectations.

The official short-term rate stands at 4.25 percent, with the next Bank of Canada (BOC) meeting scheduled for Jan. 16. Beyond that, another meeting is scheduled for March 6. Most market watchers do not expect the BOC to cut rates in the first quarter 2007.

“The market has largely priced out the probability of a cut in the first quarter,” says Ideaglobal’s Powell.

Lehman Brother’s Shin expects the BOC to remain on hold throughout 2007. Ideaglobal analysts expect the BOC to remain on hold until the end of the second quarter, at which point they expect a 25 basis-point cut to 4.00 percent.

“Given that the economic conditions have decelerated and because inflation is very well contained, there is definitely no reason for the BOC to make any moves until we see another quarter of data,” says Moody’s Economy.com’s Buskas.

She does, however, see potential for a rate cut in the second quarter.