Economists at TD lowered their forecast for the Canadian economy and now see a second Bank of Canada rate hike in March.
TD now expects the Canadian economy to grow by 2 per cent this year compared with its expectation in December for 2.3 per cent growth in 2015. A rate cut would bring the BOC overnight rate to 0.50%.
“Lower corporate profits will likely lead to a contraction in business investment and weaker employment growth relative to our December forecast,” the TD report said.
“However, the story will play out very differently in various regions of the country, with oil-producing provinces bearing the brunt of the downward revisions.”
The OIS market is pricing in a 31.8% chance of a second BOC rate cut in March and a 31% chance of yet another cut to 0.25% by October.
Separately, Goldman Sachs raised its USD/CAD to 1.28 in three months; 1.31 in six months and 1.40 in 2017.
