Bank of Canada expected to hold rates
Bank of Canada governor Mark Carney is expected to stand pat on interest rates when the central bank makes its decision known Tuesday.
And given the economic uncertainty of late, it is generally believed the central bank will be in no hurry to make changes any time soon.
"The bank will be in absolutely no rush to raise rates," Douglas Porter, deputy chief economist at the Bank of Montreal, said. "We certainly don't expect them to move on rates [Tuesday]. We also think they're unlikely to raise rates any time soon in early 2011."
The bank has already raised the rate three times this year, at a rate of 25 basis points each time in June, July and September. But since the last announcement in October when it left rates unchanged, Canada's economic picture has changed.
Late last week, Statistics Canada said the country's unemployment rate fell to its lowest level in almost two years, when the rate slipped to 7.6 per cent in November as the economy created 15,200 new positions.
Part-time work rose by 26,700, but there were 11,500 fewer full-time workers in November.
Analysts were expecting between 15,000 and 20,000 jobs to be created.
Economists view it as a sign that the economy is still struggling to reclaim the jobs lost during the recession.
Meanwhile, data in the U.S. showed the jobless rate rose to 9.8 per cent, as the economy only produced 39,000 new jobs. Analysts were expecting about 150,000 jobs.
Earlier in the week, Statistics Canada said the country's gross domestic product rose by only 0.3 per cent in the third quarter, down from a 0.6 per cent gain in the previous quarter. On a monthly basis, real GDP by industry declined by 0.1 per cent in September.
The agency said lower exports and lower investment in housing restrained GDP growth.
The country's current account deficit also widened to $17.5 billion in the third quarter.
"The Bank of Canada is likely comfortable with a 'no hike' stance for December and January, but can't at this point be too definitive about what happens thereafter," said CIBC economist Avery Shenfeld.
"Markets are pricing in some odds of a March rate hike, and we doubt the statement will sway views much on expectations that far out. We continue to see Carney's team waiting until mid-2011."
Markets fear that any further increase in interest rates will strengthen the Canadian dollar and weaken the recovery. A strong loonie was cited as a factor in the weaker than expected third-quarter GDP.
Last week, the Canadian dollar made further strides toward parity, closing at 99.67 cents US as the greenback dropped 0.9 per cent against an index of six currencies on the weaker-than-expected employment data. On Monday the loonie was at 99.22 cents US, down 0.45 of a cent from Friday's close.
With most analysts in agreement that there will be no surprise interest rate hike, the focus will shift to the central bank's comments accompanying the decision. Economists will examine them closely for clues of the bank's tone and when rates could change.
With files from The Canadian Press