TD Economics predicts the Bank of Canada will cut the overnight rate again this year.

Its Economic Forecast Update predicts the rate will be reduced by an additional 25 basis points at its next fixed announcement date in March.

Last week, the central bank cut the overnight rate by 25 basis points to 0.75%.

Read: Bank of Canada lowers rate to 0.75%

TD also trimmed its economic outlook for Canada due to a drop in oil prices. It now expects real GDP growth for 2015 will be 2%, down from 2.3% in its December forecast.

“In an oil-exporting economy such as Canada, the economic landscape changes dramatically when oil prices take a nosedive,” says the update. “While there are some positive offsets such as relief at the pumps, on balance, the economic impact is negative.”

Read: Expect more surprises from BoC

Looking ahead, TD believes the Canadian dollar still has some ground to lose. The U.S. Federal Reserve is likely to raise rates in late 2015, and it predicts this will shift interest rate spreads to the detriment of the Canadian dollar. Oil prices are also expected to head lower in the near term, perhaps dropping temporarily below US$40 and then will be slow to recover.

“This could push the Canadian dollar down toward US$0.75 in early 2016,” the update says. “Then the currency should gradually recover, reflecting the anticipated rise in crude oil prices and a reversal of the Bank of Canada cuts in the second half of next year.”

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Copyright © 2020 Transcontinental Media G.P. Originally published on benefitscanada.com

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