Are we on the road to recovery?

Ottawa — Reuters Published on Sunday, Dec. 06, 2009 10:57AM EST Last updated on Sunday, Dec. 06, 2009 4:56PM EST from the Globe and Mail

The Bank of Canada is widely expected to keep its hands off interest rates Tuesday, holding them at near zero and committing to do so until at least July, despite growing evidence the economy is kicking back to life.
Fears of prolonged economic stagnation eased Friday with a report showing employers hired five times as many workers as expected. The data supported the Bank of Canada's view that economic growth will speed up in the fourth quarter after a disappointing third-quarter, when it barely crept out of recession with tepid 0.4 per cent annualized growth.
All 12 of Canada's primary securities dealers, surveyed by Reuters after the jobs report Friday, forecast the central bank would hold its overnight target rate unchanged at 0.25 per cent at its final policy-setting meeting of the year.
The bank releases its rate decision and accompanying statement at 9 a.m. ET Tuesday.
Two-thirds of the traders think the bank will follow through on its pledge to hold rates at that level through mid-2010, conditional on inflation staying on track.
“They will lean over backward to make their conditional forecast come true,” said David Laidler, an economist with the C.D. Howe Institute.
“What they might start doing between now and June or July, is they might start making more and more public noises about the need to raise interest rates immediately afterward. That's the kind of thing you'll see but not in this announcement,” he said.
Others think the bank's job will be to dampen any speculation that it will abandon its zero-rate policy at the earliest opportunity.
“We expect the bank to attempt to temper early rate hike expectations at next Tuesday's policy announcement,” said Sheryl King, head of Canadian economics and strategy at Bank of America Merrill Lynch.
The Bank of Canada will be pleased with the November job gains, not just because its prophecy of a robust 3.3 per cent fourth quarter may be fulfilled but because it lessens the bank's concerns about the strong Canadian dollar hindering a robust recovery.
Doug Fraser

Doug Fraser

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