CIBC World Markets Inc. is pushing back its expectation for an interest rate hike by the Bank of Canada until sometime in 2017, according to a report published on Friday.
The economy is likely to grow at just a 2% rate in 2016, the CIBC report says, and that’s even with a dose of fiscal stimulus from the new federal government’s spending plans. “For monetary policy makers, next year’s decisions will be guided by the degree to which, after the sweeter 2016, the economy will be less in need of stimulus in the following year,” says the CIBC report. “The recent news has been less encouraging in that regard, suggesting that we might still be running at a 0.5% overnight rate into early 2017.”
The recent news clouding the outlook includes continued weakness in oil prices, and dimming expectations for their recovery. “Prices should be higher in 2017, but not nearly high enough to get Canada’s [resource] sector back in gear,” the CIBC report says.
In addition, the U.S. Federal Reserve may be curbing U.S. growth by the end of 2016, the CIBC report notes, and fiscal stimulus in Canada will be dissipating. “While federal fiscal policy will still have some stimulus coming in 2017, some provincial governments might be going the other way,” the CIBC report says.
Taken together, “these clouds on the 2017 outlook will be in the Bank of Canada’s thinking. Given the more protracted period of commodity weakness we now seem to be facing, we’re shifting our call for a Canadian hike late in 2016 to a date still to be set in 2017,” the CIBC report concludes.