The Bank of Canada likely only has two more solo rate hikes before it will have to wait for the U.S. Federal Reserve Board, says National Bank Financial.

In a research note published Monday, NBF notes that the Bank of Canada has just raised its key rate a third time while the central banks of most of the other advanced countries look on from the sidelines.

“Given the magnitude of the shock suffered south of the border, disinflationary pressures there have been much greater than in Canada, which suggests that the Fed could sit tight for another year,” it says.

The Fed is scheduled to release its latest decision on interest rates Tuesday afternoon.

In Canada, the rate is still certainly very stimulative, NBF says, however, it believes that the Bank of Canada “is unlikely to keep going it alone for much longer.”

“Indeed, overly divergent monetary policies between Canada and the United States could drive the loonie upward and further deteriorate a trade balance already in bad shape,” NBF says. As a result, it predicts that the Bank of Candaa will only deliver two more 25 basis point rate hikes over the next year.

“With the economy slowing down to the level of potential GDP growth for 2011 and with the output gap closed, the Bank of Canada should then mark time before raising rates further until the U.S. economy gets up and running again,” NBF says.

IE