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BMO shares tumble on concerns of an inflation correction

BMO Corp. is trading down after the U.S. Federal Reserve raised its benchmark interest rate on Thursday and signaled a potential easing in monetary policy.

The Toronto-Dominion Bank said it expected inflation to fall to a 2 per cent rate in 2018.

The U.K.’s central bank, the Bank of England, has raised interest rates twice in a row, raising hopes that inflation will pick up after a sluggish 2016-17 economic expansion.

The bank, however, also cautioned that the country still faces “uncertainty” over its economic outlook and added that it is still too early to predict whether a rate hike could have a significant impact on the U-K’s inflation outlook.

In a note to investors, the bank said it expects the U:T:D-CAD inflation rate to fall from a low of 1.2 per cent in 2016 to a range of 1-2 per year over the next five years.BMO said it has “a good view of the outlook for inflation in the United Kingdom.”

In addition, BMO expects the UK economy to contract by 0.1 per cent this year and 0.3 per cent next year.

The bank expects growth to contract again in 2019, with the forecast for the UK to contract to 1.5 per cent over the coming years.

“Despite the economic uncertainty surrounding Brexit, BMD expects inflation to be moderate in the medium term, driven primarily by a continued strong demand outlook,” the bank wrote in a note.

“Given the recent volatility in inflation expectations and the continued impact of the uncertainty around the outlook, we remain confident that inflation is likely to remain low in the coming year.”