Bank of Montreal economists say that the Bank of Canada will “likely refrain” from raising interests rates in the coming months, and could even resume cutting rates.

In its checklist of what the Bank of Canada watches, which was released yesterday, BMO economists conclude “The strong loonie has reduced Canadian exports and dampened economic growth, therefore the Bank of Canada will likely refrain from raising its target for the overnight rate in the months ahead.”

“However, a near-term risk is that, if the weakness in the economy continues, the Bank could shift its bias towards a rate reduction,” they add.

“Further out, rates are projected to begin climbing gradually in September 2005 from a current 2.5% towards a more neutral level of 4.5% by early 2007,” the report notes.