Federal Reserve tapering will hit Canada harder than the U.S., so the Bank of Canada may delay an interest rate rise, say Scotiabank analysts Derek Holt and Dov Zigler.
Both the Fed and the BoC may raise interest rates in late 2015, or they could decide to wait even longer, they add.
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Tapering would hurt Canada more because it would push global fixed rates upward at a sensitive time for Canadian households, which can’t take on much more debt.
The policy would also pull capital into the U.S. and make it more expensive for companies to borrow money. That may “restrain the already disappointing investment cycle,” they add.
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Tapering could also weaken commodity prices, and further hurt Canadian investment, they say.
And while the Fed has implied it would wait for the U.S. economy to recover before tapering, at the time of a taper, American growth might not yet be strong enough to bolster Canada’s economy.
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But a depreciation in the value of the Canadian dollar wouldn’t be such a bad thing, add the analysts, as it would promote Canadian export growth.
