Source: The Canadian Press

Bank of Canada governor Mark Carney takes centre stage this week with his last interest rate announcement, but given the persistent economic uncertainty it’s widely expected he’ll leave the bank’s influential policy rate untouched at 1%.

“The bank will be in absolutely no rush to raise rates,” Douglas Porter, deputy chief economist at the Bank of Montreal, said Friday.

“We certainly don’t expect them to move on rates next week. We also think they’re unlikely to raise rates any time soon in early 2011,” Porter added.

The vast majority of economists say an interest rate hike is off the table when Carney addresses the issue Tuesday — an assumption that had been built into economic models for months but was solidified by lukewarm economic reports released last week.

The Bank has already raised the rate three times this year in increments of 0.25 percentage points in three sequential announcements in June, July and September.

Since it’s last announcement in October — when rates were left unchanged — there have been some significant changes in Canada’s economic outlook.

Inflation has heated up — largely on the back of the new harmonized sales tax regimes in B.C. and Ontario introduced this summer — a key factor in any interest rate decision as hikes are usually introduced to cool an overinflating currency.

Last week three key economic reports suggested the pace of the economic recovery is much weaker than had been forecast.

Canada’s current account deficit widened to $17.5 billion in the third quarter, the largest on record since 1946, while third-quarter real gross domestic product growth came in at a disappointing 1% annualized, below expectations for 1.4%.

And on Friday, Statistics Canada issue a mixed report on the jobs market that also suggested the economy hasn’t been as strong as previously forecast.

The national unemployment rate fell three-tenths of a point to 7.6%, the lowest since January 2009, despite only a modest pickup of 15,200 net jobs.

All of the job gains, meagre as they were, came in part-time positions and in the public sector. Meanwhile, 11,500 workers were dropped from full-time positions and the private sector and 43,600 Canadians left the labour market.

Markets fear that any further increase in interest rates will strengthen the Canadian dollar and weaken the recovery. A strong loonie was cited as a factor in the weaker than expected third-quarter GDP.

Last week, the Canadian dollar made further strides toward parity, closing at 99.67 cents US as the greenback dropped 0.9% against an index of six currencies on much weaker than expected unemployment data.

The U.S. unemployment rate climbed to a seven-month high of 9.8% in November as hiring slowed, suggesting continued weakness in the American economy. Economists had expected a modest gain in employment of 145,000 new jobs, but employers added only 39,000 jobs last month.

A downgraded U.S. outlook was key to the Bank of Canada’s more dovish forecast for Canada in October.

Concerns about the broader global recovery, both in the U.S. and overseas, will push interest rate hikes even further down the road, Porter said.

China has signalled it could soon raise interest rates, meaning slower growth and less demand for Canadian resources. Europe finds itself in the midst of a renewed panic over the spread of government debt after Ireland asked for a bailout from the EU last month. Portugal and Spain have been flagged as the next potential bailout targets, suggesting the European debt crisis will linger well into 2011.

Many observers don’t believe the economy will be strong enough to give Carney a reason to raise interest rates until the second half of next year, leaving consumers in an extended period of low interest rates.

With little possibility of a rate hike, economists will instead focus on the tone of Carney’s speech for signs about where monetary policy might be headed further down the road.

In past announcements, Carney has voiced concern about consumer debt and the ability of borrowers to meet their payments once interest rates begin rising again.

Despite the mixed economic data streaming out of the U.S. and Canada last week, the Toronto Stock Exchange hit a post-recession high on three consecutive days, closing Friday at 13,178.95 — up 2.2% from the previous week’s close.

Bank of Montreal (TSX:BMO) will report its fourth-quarter results Tuesday, wrapping up earnings season at Canada’s big six banks.

Earnings for the Canadian banking sector have been wildly divergent so far, with the Royal Bank (TSX:RY), TD Bank (TSX:TD) and CIBC (TSX:CM) all turning in weaker fourth-quarter earnings results, while Scotiabank (TSX:BNS) and National Bank (TSX:NA) both showed improvement.

Meanwhile, commodity prices have been on a tear as the U.S. dollar weakens against other currencies and that’s expected to continue, said Bob Tebbutt, vice-president of risk management at Peregrine Financial Group Canada.

“There was a depression in commodity prices because worries over Ireland … and Portugal but I think that has been eliminated,” Tebbutt said.

“I see the American dollar starting to sell off and, since all commodities are priced in U.S. dollars, that too is going to add to the strength on commodity prices,” he added.

Oil settled the up $1.19 at $89.19 a barrel on the New York Mercantile Exchange.

It’s the second time in less than a month that oil has reached the level where it was in the fall of 2008. There are widespread expectations that the price will hit $90 a barrel by year’s end and head toward $100 a barrel by next spring when traders begin looking ahead to the summer driving season.

The February gold contract was up $16.90 to US$1,406.20 an ounce as investors sought a safe and stable investment. The March copper contract on the Nymex was up two cents at US$4 a pound.