The Bank of Canada is widely expected to stand pat on interest rates this week.

“The Bank of Canada won’t have to work over the long weekend to come up with its rate announcement for Wednesday,” says CIBC World Markets Inc. “Dodge has no reason to alter his stand-pat course, or materially change his explanation for that decision. Look for the statement to suggest that the big picture remains essentially on its forecast track, despite a somewhat slower-than-expected second quarter.”

TD Bank Financial Group agrees, its economists say that, “the odds that the Bank of Canada will do anything to its overnight rate at next week’s Fixed Announcement Date are virtually nil. The overnight rate will remain at 4.25%.” Indeed, it believes that the Bank of Canada is done, and that the next move will be a rate cut in 2007.

That view is echoed by BMO Nesbitt Burns, which notes, “After keeping rates unchanged at their prior meeting in July, the accompanying press statement again asserted that rates were seen ‘to be consistent with achieving the inflation target over the medium term.’ That’s about as clear as the Bank can get that they were likely to stay on hold, provided the economic data remain close to their expectations.”

BMO Nesbitt says that it is looking for the Bank to hold rates steady both next week and in the two remaining meetings in 2006.

“There is not a single analyst expecting the Bank of Canada to do anything next week. And, the market has completely priced out any chance that the Bank of Canada will hike its overnight rate this year, never mind next week,” TD adds.

“The Canadian economy is operating at, or slightly above, its capacity limits by any conceivable measure, and core inflation is running right on the Bank of Canada’s target. That puts the central bank pretty much on knife’s edge,” TD explains. “Ultimately, if the Canadian economy continues to grow below potential as we expect it to, any incipient inflation pressures will eventually ease. Consequently, we continue to believe that the Bank of Canada is done, and that the next move will be a cut in 2007. However, that does not mean that the Bank of Canada can just doze off — the backdrop is not yet that benign.”