(May 1 – 15:50 ET) – Economists agree that the best Canadian markets can hope for is rate cuts to match those of the U.S. Federal Reserve Board this year.

Today’s Monetary Policy Report by the Bank of Canada lowered growth estimates from previous report issued last November. The Bank of Canada now sees GDP growth between 2% and 3% in 2001, down a point from the November report, and down from about 3% in the bank’s February update. This is generally in line with consensus forecasts. The central bank expects to see growth of between 1.25% and 2.25% in the first half of the year, accelerating to between 2.5% and 3.5% in the second half.

In reacting to the report, economists say the Bank of Canada will likely match further U.S. rate cuts, but not exceed them. BMO Nesbitt Burns says, “There was no sense of urgency in the report, suggesting that the bank is likely to no more than match future rate cuts by the Federal Reserve. Past easing moves and this year’s drop in the Canadian dollar have already led to considerably weaker monetary conditions.”

“With the anticipation of a 50 basis point cut by the Federal Reserve on May 15, this report and the recent recovery in the Canadian dollar gives the bank leeway for a matching move at its next scheduled announcement date of May 29,” says BMO.

TD Bank economists agree that the bank is playing it cool. “The [report] will do little to dissipate perceptions that the central bank remains fairly sanguine about Canada’s economic outlook,” says TD.

TD says that although the bank presents a wide range for its GDP forecast, it notes, “”Recent comments from Governor David Dodge suggest that the Bank is expecting growth to come in closer to the top than to the bottom of the range.”

Both TD and BMO seem to agree that the big risk to the bank’s outlook — the timing and pace of the U.S. rebound — remains uncertain, and has yet to emerge. “This morning’s NAPM report continues to show that the U.S. factory sector is very weak and that the inventory correction has not been completed. Accordingly, it is too soon to suggest that U.S. growth has reached its low point and we maintain the view that the U.S. economy has not begun a sustainable recovery,” says BMO.