Canada rates may be on hold indefinitely-JPMorgan

TORONTO, Aug 15 (Reuters) - The Bank of Canada could put interest rates on hold indefinitely if the domestic market for commercial paper stays turbulent and dysfunctional, J.P. Morgan analyst Ted Carmichael said in a report on Wednesday.

"As long as the commercial paper market remains seized up, the Bank of Canada is highly unlikely to raise the policy rate on the Sept. 5 decision date," he said, warning that financing delays could delay economic activity and reduce growth.

"Should the current market situation persist (or worsen) through August 24, the JPMorgan BoC rate forecast will be changed to "on hold indefinitely"."

But a Canadian rate cut was unlikely, unless it was part of concerted rate cuts by the U.S. Federal Reserve and other central banks.

Carmichael said it was not clear if the Bank of Canada would or could find a way to inject funds into the market for asset-backed commercial paper, which has seized up since major player Coventree Inc (COF.TO: Quote, Profile, Research, Stock Buzz) said it was unable to place new paper in a fallout from the U.S. subprime mortgage woes.

"Only if short-term financing markets return to some semblance of normalcy soon will the BoC be able to focus on normal macroeconomic factors in making its interest rate decision on Sept. 5," Carmichael said.

Up to the turmoil in the commercial paper market most analysts had expected the Bank of Canada to raise interest rates on Sept. 5 to cool the economy and keep inflation under control.