UPDATE 1-All Canada dealers see Sept rate hike, Q4 cloudy

* Dealers leave forecasts mostly unchanged

* Unanimously call for a 25 bps rate hike in September

* Most dealers see at least one pause after September

* Yearend rate forecast ranges between 1.00-1.50 pct
(Adds details, commentary throughout)

By Ka Yan Ng and Claire Sibonney

OTTAWA/TORONTO, July 20 (BestGrowthStock) – Canada’s primary
securities dealers forecast unanimously on Tuesday that the
Bank of Canada will raise interest rates for a third time this
year in September, but most expect a pause in the credit
tightening cycle sometime in the fourth quarter.

All 12 of Canada’s primary dealers, surveyed by Reuters,
said Canada’s central bank will raise rates at its next
scheduled policy announcement date on Sept. 8, unchanged from a
similar poll last week.

The survey was conducted after the Bank of Canada raised
its key rate by 25 basis points on Tuesday and warned that
economic recovery at home and abroad will be slower than it had
previously forecast, suggesting any further hikes may be
gradual. [CA/INT]

Markets were less sure than the dealers that the bank will
raise rates again in September. Yields on overnight index
swaps, which trade based on expectations for the central bank’s
key policy rate, suggest about a 37 percent chance of a rate
hike on Sept. 8. (BOCWATCH: )

“I think markets are a little lost in the sense that there
are other concerns,” said Carlos Leitao, chief economist at
Laurentian Bank Securities.

“To me, the bank is not much different today than it was in
June so therefore they’ll keep highlighting the risks and
whatnot but they’ll keep going.”

Most dealers — the institutions that deal directly with
the central bank to help it carry out monetary policy — left
their October and December predictions unchanged from the poll
published on July 14. [ID:nTOR007671]

Fears of a double-dip recession, Europe’s debt troubles and
patchy U.S. economic data have weighed on markets in recent
months, and the central bank on Tuesday said the global
recovery “is proceeding but is not yet self-sustaining”.

The central bank also said it now sees the economy
returning to full capacity by the end of 2011, two quarters
later than it estimated in its April Monetary Policy Report.

“The key thing is the pushing back of the closing of the
output gap. They’ve got now another six months to bring rates
back to where they should be,” said Michael Gregory, senior
economist at BMO Capital Markets.

“They got a little bit more wiggle room. They can skip
periodically and that’s reflected in what the market is
thinking now.”

Three dealers said the central bank would halt rate rises
after September for the rest of the year, while four dealers
said rates would be lifted by 25 basis point increments at each
of the three scheduled policy announcements left this year.

“There was a lack of conviction clearly in this (Bank of
Canada) press release and the door is open. We still think that
domestic developments should be strong enough going forward to
warrant an increase of 25 basis points at each upcoming
meeting. The real rate is still pretty low,” said Yanick
Desnoyers, an economist at National Bank Financial.

“They don’t want to give any guidance to the market. I
suspect that this will probably be the longest lag in history
between an increase in rates in Canada and no policy response
in the U.S.”

Year-end forecasts for the Bank of Canada overnight rate
ranged from 1.00 percent to 1.50 percent.

COMPANY SEPT OCT DEC

RATE RATE RATE

BOA-MERRILL LYNCH 1.00 1.00 1.00

BMO CAPITAL MARKETS 1.00 1.00 1.00

CASGRAIN & CO LTD 1.00 1.25 1.25

CIBC WORLD MARKETS INC. 1.00 1.25 1.25

DESJARDINS SECURITIES 1.00 1.25 1.50

DEUTSCHE BANK SECURITIES 1.00 1.00 1.25

HSBC SECURITIES 1.00 1.25 1.50

LAURENTIAN BANK SECURITIES 1.00 1.25 1.50

NATIONAL BANK 1.00 1.25 1.50

RBC CAPITAL MARKETS 1.00 1.00 1.25

SCOTIA CAPITAL INC. 1.00 1.00 1.00

TORONTO-DOMINION BANK 1.00 1.00 1.25

Stock Investing

($1=$1.05 Canadian)
(Reporting by Ka Yan Ng and Claire Sibonney; editing by Peter
Galloway)

UPDATE 1-All Canada dealers see Sept rate hike, Q4 cloudy