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Bank of Canada may not hike rates until 2015

These are stories Report on Business followed this week.

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Rate hikes a waiting game
It could be 2015 before the Bank of Canada raises interest rates again.

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As The Globe and Mail's Kevin Carmichael reports, the central bank held its benchmark overnight rate at 1 per cent this week, saying such exceptional stimulus "will likely remain appropriate for a period of time."

Economists expect that period of time to run to the latter half of 2014 at the earliest, and possibly even early 2015.

Bank of Canada Governor Mark Carney and his colleagues on the policy-setting panel also trimmed their forecast for economic growth this year, to just 1.5 per cent, though that would be followed by a rebound to 2.8 per cent next year and 2.7 per cent in 2015.

The economy is now forecast to reach full capacity halfway through 2015, later than initially expected.

"Internally, the Bank of Canada likely still believes it will hike a couple of quarters ahead of the Fed, perhaps in the latter half of 2014 reading between the lines of its policy report," said chief economist Avery Shenfeld of CIBC WOrld Market.

"But that relies on a fairly rosy scenario for 2.8 per cent real GDP growth in 2014," he said in a report Friday.

"While we share the bank's optimism on the U.S., Canada has trailed America's pace by nearly a percentage point in the last four quarters, despite U.S. growth being spurred by sectors like autos and housing that typically draw in Canadian exports."

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Gold slumps
The price of gold is now in the $1,400-an-ounce (U.S.) area after a tremble a week ago became an avalanche on Monday.

The real trouble started a week ago Friday amid word that Cyprus could sell its gold holdings to help fund its bailout, raising concerns that Italy and Portugal could follow suit.

That's all very premature, of course, but it followed new, lower forecasts for gold by Goldman Sachs Group Inc. and Société Générale, and then the jitters turned into an all-out rout at the beginning of the week after China reported weaker-than-expected economic growth for the first quarter of the  year.

"We already knew Europe isn't growing," Kit Juckes, the chief of foreign exchange at Société Générale, said this week.

"Then we got a U.S. slowdown. Then we got a Russian slowdown and then the Chinese data came out and sent further despondency into the markets. Down went gold, down went equities, credit indices. Yield curves steepened and up went yen, dollar and Korean won, against pretty much everything else."

Société Générale had projected a 15-per-cent drop in gold by the end of this year, to $1,375 an ounce, a prescient call given what happened, followed by what it forecast would be years of a "gentle bear market."

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Goldman Sachs, in turn, projected gold would average $1,545 this year and $1,350 next.

Markets slide
The most dramatic market news may have been the fall in the price of gold, but, as senior economist Robert Kavcic of BMO Nesbitt Burns notes, stock markets went along for the ride as they were "thumped this week amid disappointing growth numbers from China, more signs of a U.S. soft patch and a meltdown in commodity prices."

Toronto's S&P/TSX composite index lost 2.2 per cent, and the S&P 500 2.1 per cent.

"Buried in the background, the Q1 earnings season also rounded into full swing, and it's generally been so far, so good," Mr. Kavcic said.

"With about 20 per cent of the S&P 500 reporting, 72 per cent of companies have beaten expectations according to Bloomberg's tally - that's about in line with recent norms for this point in the reporting period," he added in a research note.

The consumer sector has been the top performer so far relative to expectations."

Apple slips
Gold bugs may have had a bad week, but so, too, did Apple Inc. shareholders.

Apple shares fell below $400 (U.S.) for the first time since 2011 amid concerns in the run-up to its quarterly financials next week.

What started that ball rolling was a weak first-quarter outlook from audio chip supplier Cirrus Logic, whose stock also sank.

Given that iPhones and iPads both use Cirrus chips, investors are fretting over what the Cirrus report could mean.

According to The Financial Times, analysts think Apple could mark its first annual dip in profit next week.

Required reading
Industry Minister Christian Paradis will move fast to finalize rules that will govern the transfer of wireless licences between telecom companies. Rita Trichur and Boyd Erman report.

Interest rates are going up. But in a rare bit of good news for Canadian bank customers, this times it involves savings accounts, Grant Robertson writes.

Canada's oil patch finds itself facing new threats from the Permian Basin, an oil-rich region in Texas that has produced crude since the 1920s, Nathan VanderKlippe reports.

La Presse is making a $40-million bet on the future of news, hoping readers and advertisers will embrace a new tablet edition, Steve Ladurantaye reports.

Toyota Motor Co.'s plan to shift production of its most popular Lexus in North America from Japan to Kentucky is another sign of how tough it is for Canada to compete for new auto dollars, Greg Keenan writes.

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More


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