Interest rates will rise again

This week’s equity market recovery may have boosted the U.S. dollar. And commodity price slackening is slugging the Canadian dollar. But DS economists say we shouldn’t expect that to keep the Bank of Canada on its hands when the U.S. Federal Reserve Board raises rates, as expected, next month.

Weak Canadian Consumer Price Index data is heightening talk of no rate moves in Canada. DS says the Bank of Canada isn’t so focused on current data though/ It is intent on preventing future imbalances from developing 18 months down the road.

DS continues to expect that the BOC will follow the Fed with 25 basis point increases in May and June. Although Canada appears to have more room to move than the Fed, DS economists prefer a gradual approach now, rather than radical action later. Rate hikes should also help defend the Canadian dollar, they add.