The Financial Post
That is the view emerging following the weekend gathering of the world's leading central bankers in
"The key message from
"It seems more likely that there will be no increases in interest rates in any of the major economies over the next 12 to 18 months."
Strategists at RBC Capital Markets concurred, adding in a note released Monday: "We continue to believe the economic backdrop will warrant a significant additional period of low rates. Indeed, even at the
This outlook applies to
Canada has a significant output gap - the difference between potential and real gross domestic product - and the rate at which money is deployed in the economy, or money velocity, has shrunk 15% since late last year even though the central bank has taken its target rate to its lowest possible level, the BofA-Merrill Lynch analysis indicates.
"To compensate, we think the Bank of Canada will probably need to keep rates lower... to ensure that money creation remains in the double-digit [growth] territory needed to reinflate the economy and close the output gap," the report says.
This outlook is similar to what economists at Laurentian Bank Securities suggested last week. They said a lack of pricing power for firms, a sizeable amount of excess supply and virtually non-existent upward pressure from labour costs means the bulk of policy tightening would not materialize until 2011.
The Bank of Canada signalled in its last economic outlook that it expected economic growth to resume this quarter, marking, technically, the end of a deep but relatively short recession. It expects growth this quarter of 1.3%, 3% in the final three months of 2009, and the latter again in 2010.
Further boosting the recovery story was data from
Of particular concern in his outlook was the source of demand once governments phased out fiscal stimuli. The worry is that
Masaaki Shirakawa, governor at Bank of Japan, told his peers at