The Bank of Nova Scotia has reforecast its outlook on the Bank of Canada and now believes the bank will hold off on hiking its overnight rate until 2016.
“The Bank of Canada probably now envisages spare capacity remaining into 2016,” the report stated. “It could well push out its forecast to return to the two per cent inflation target in the October 23 statement and MPR.”
Prior to the latest forecast, which was researched by Derek Holt and Dov Zigler of Scotia’s Capital Markets Research, many believed the rate will be changed in 2015 – including the aforementioned two.
“We have changed our house forecast for the Bank of Canada to show no rate change throughout 2013-14. As such, the overnight rate is forecast to end 2014 at an unchanged one per cent,” Zigler and Holt intimated in their prior February 2013 forecast.
Of course, that forecast was actually a reforecast as well.
“Our prior print forecast was that the Bank of Canada would remain on hold until 2014 Q1 and so we are therefore now pushing that out by about a full year,” the February 2013 report said. “While I have long spoken about how the fat tail risks to our print forecast are skewed toward later rather than sooner, this is a pretty sizeable forecast change that merits delving into some of the key reasons.”
This newest forecast is the result of increased speculation that the Bank of Canada will hold off on hiking rates until its American counterpart, The Federal Reserve, raises its own.
“The Bank of Canada until now has forecast a return to the two per cent inflation target by around mid-2015,” the report said. “Delaying this guidance would be consistent with leaving rates on hold throughout all of 2013-15, with the Bank of Canada lagging the Federal Reserve either in timing and/or magnitude under current Fed guidance.”