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By Frank Pingue
TORONTO, Feb 19 (Reuters) - The majority of Canada's
primary securities dealers predicted on Tuesday that the Bank
of Canada will cut interest rates by 50 basis points in March
amid a downturn in the U.S. economy.
Eight of Canada's 12 dealers, surveyed by Reuters, forecast
Canada's central bank will cut its key rate by 50 basis points
to 3.50 percent on March 4. Four of the dealers expect a
25-basis-point cut.
That is similar to a Jan. 24 poll, when seven of the
dealers predicted the central bank would cut rates by 50 basis
points and five called for a 25-basis-point cut.
"We always thought it was a close call, and we still think
it's a close call," said Doug Porter, deputy chief economist at
BMO Capital Markets. "The one thing that has tipped us a bit is
there hasn't been any sense of urgency from the Bank of Canada
that they are poised to pick up the pace of easing."
BMO Capital Markets now expects a quarter-percentage point
rate cut next month, down from the half-percentage point cut it
had predicted in the Reuters poll taken in January.
In a speech on Monday, Bank of Canada Governor Mark Carney
said the bank has to weigh strong domestic demand against the
spillover effects of the slowing U.S. economy when deciding how
much to cut interest rates next month.
Ten of the 12 dealers forecast rates will be lowered by 25
basis points on April 22 and two expect no move, identical to
the January poll.
Eight of the dealers also forecast interest rates will fall
by another 25 basis points on June 10 and four expect no move.
By the end of 2008, the key overnight rate is seen as low
as 2.50 percent and as high as 3.50 percent.
The poll was conducted after data showed Canada's annual
core inflation rate, which helps guide Bank of Canada interest
rate decisions, slowed to 1.4 percent in January.
The inflation report marked the last key piece of domestic
data scheduled for release ahead of the Bank of Canada's rate
announcement on March 4.
Weak U.S. data has reinforced fears of a recession there,
which could have a severe impact on Canada by curtailing demand
for its exports by the United States, its key trading partner.
Canada's economy has already showed signs of slowing in the
wake of the U.S. subprime mortgage-related debacle and slowing
demand for its exports, but lower domestic rates are not likely
to solve the problem, some experts say.
"By cutting rates you're obviously stimulating domestic
demand, but domestic demand is already operating at a fairly
good clip," said Stewart Hall, market strategist at HSBC
Canada. "So I'm not sure that we can realistically expect that
domestic monetary policy is going to be really capable of
offseting the loss in external demand."
(Additional reporting by John McCrank; Editing by Renato
Andrade)
