Those expecting anything new from the Bank of Canada’s upcoming interest rate decision will likely be disappointed, say TD Bank economists. TD believes it will be the end of the year before the central bank begins hiking rates.

“The Bank’s coming monetary policy decision on January 19 promises to look a great deal like the last one, and with good reason,” it says. Indeed, it notes that, since the last Bank of Canada rate-setting decision on December 8 of last year, “Canadian economic data has been fairly good, though not striking.”

“The market does not entirely disagree, as betting on the Bank of Canada over the past six weeks has been relatively placid, and the market’s expectations one year out are only modestly higher,” it observes.

TD says that monetary policy changes will certainly be in play later this year, but not yet. It is maintaining its forecast that the first rate hike won’t take place until the fourth quarter of 2010. “The Bank of Canada should manage not only to meet its commitment to keep the overnight rate unchanged until mid-2010, but to delay a first hike until the final quarter of 2010. From that point, rates should begin to rise briskly, with the Fed joining in early 2011,” it predicts.

“Throughout it all, there may be less transparency than in the past, both because the economic uncertainty precludes central banks themselves from having much confidence about the future, but also as central banks appreciate the value of a healthy term premium to ensure markets do not stumble down undesirable paths,” TD adds.

IE