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Budget office sees rates on hold until 2015

BankofCanada
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Canada's parliamentary budget office on Monday maintained its forecast of 1.9 percent economic growth this year but cut its outlook for 2013 and 2014 and said it sees the Bank of Canada holding interest rates steady through the first quarter of 2015.

The PBO said it sees the federal government eliminating its budget deficit and returning to surplus in the 2015-16 fiscal year, which the government also expects.

It forecast that Canada's real gross domestic product will expand by 1.5 percent next year, down from its April forecast of 1.6 percent growth. It cut its 2014 forecast to 2.0-percent growth from 2.2 percent.

"The weakness in near-term growth pushes the economy further below its potential, resulting in an increase in the unemployment rate," the PBO said in a report.

"With inflationary pressures well contained and Consumer Price Index (CPI) inflation remaining below its 2-percent target, PBO expects the Bank of Canada to maintain its policy interest rate at 1 percent through the first quarter of 2015," it said.

The PBO released its fiscal outlook just before the federal government was due to release its own forecasts, which are based on the average of a group of private sector economists.

The PBO's view on central bank interest rates, now at 1.0 percent, is more dovish than most.

Most of Canada's primary dealers expect the Bank of Canada to hold off raising interest rates until late 2013 or 2014. The median forecast in a recent Reuters poll of these dealers was for a rate hike in the fourth quarter of 2013.

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