TD: BoC rate increase pushed to Sept

The Bank of Canada will keep its key policy rate on hold at one per cent until September, TD Bank predicted Tuesday as it pushed back its expectations for the next rate hike from July.

However, TD said it still believed the central bank’s overnight rate would be 1.75 per cent by the end of the year and three per cent by the third quarter of 2012.

David Tulk, TD’s chief Canadian macro strategist, and Ian Pollick, a portfolio and rates strategist, suggested there was a gap between what the Bank of Canada should do and what it will do and argued the central bank should move sooner rather than later to raise rates.

“Looking further out over the balance of the year and into 2012, the main message of the forecast is unchanged,” the economists wrote in a report.

“Keep in mind that the current focus of the market on international events will eventually come at its peril when conditions in the domestic economy demand a response by the (central) bank.”

The Bank of Canada’s next opportunity to raise interest rates comes May 31.

The central bank’s overnight directly affects lines of credit and variable rate mortgages.

Bank of Canada governor Mark Carney gave no indication about his plans for interest rates in Canada in a speech Monday, instead taking the opportunity to warn about the dangers of high levels of debt in advanced economies.

Carney said Canada has the advantage of a strong fiscal position, but that it cannot totally evade the fallout of high debt in the U.S. and other advanced countries.