UPDATE 1-Bank of Canada survey shows most market players see rates being cut to 4% by year end

(Adds details from report, background)

OTTAWA, Feb 6 (Reuters) - The Bank of Canada will cut interest rates by a half a percentage point to 4% by December, according to a median of market participants surveyed by the central bank, with borrowing costs seen coming down further next year.

The Bank of Canada on Monday released for the first time a quarterly survey of market participants.

Last month the bank hiked its key interest rate to 4.5%, the highest level in 15 years, and said it would hold off on further increases for now.

None of the 28 market players surveyed predicted that rates would go higher this year, while some forecast that the key borrowing rate could fall to 3.75% by December. A median of those surveyed put rates at 3% in the fourth quarter of next year.

After the rate decision on Jan. 25, Governor Tiff Macklem in an interview

pushed back

against traders who were betting that the central bank would cut rates as soon as October, saying the bank is pausing to determine whether rates must go higher, not lower.

In the same survey, a median of 26 market participants forecast that real gross domestic product will be down 0.4% at the end of this year versus a year earlier, and will bounce back to grow 2% annually by the end of next year.

The median forecast for annual inflation is 2.9% at the end of the year, which is just inside the central bank’s 1%-3% target range, compared with 6.3% inflation in December. (Reporting by Steve Scherer and Ismail Shakil; Editing by Mark Porter)