January 22, 2015 / 11:22 PM / 3 years ago

Young economist stands out with maverick Bank of Canada rate call

TORONTO, Jan 22 (Reuters) - Thomas Costerg went out on a limb this week.

The 29-year-old Standard Chartered economist predicted the Bank of Canada would cut its key interest rate by 50 basis points in March, alone among veteran market watchers who saw no rate move for the full year. In a shock move, the central bank cut rates by a quarter percentage point on Wednesday.

Costerg, who graduated from the University of Paris in 2007, played down his maverick forecast, saying others could have reached the same conclusion had they focused on the data.

“Some analysts may have been drinking from the forward guidance fountain a bit too much,” he said from Standard Chartered’s New York office where he moved to in 2013 from London.

“Putting a non-consensus rate cut fuels debate internally and with clients, so it feels good to be on the right side.”

In a Reuters poll last week, StanChart forecast a hike as the next rate move and not until the second quarter of 2016, based on its own December report.

On Monday, Costerg published a new report that forecast a 50 basis point rate cut in March. The new outlook came after analyzing the sharp drop in oil prices, deteriorating economic data and a speech from a key Bank of Canada policymaker Jan 13.

“When the screen flashed 0.75 percent at 10 o’clock, I stared at my screen and said to myself, ‘Whoa, they did it.’ I struggled to read the statement,” said Costerg, StanChart’s economist for Canada and the United States and a former analyst at Lehman Brothers in London.

“I regretted I put the rate cut in March and not in January.”

He has since revised his March forecast and sees a 25 basis point cut, instead of 50 points. He maintained his call for a 25 basis point cut in April.

Canada’s economy will enter a shallow two-quarter recession, starting in the second quarter, Costerg predicts.

The central bank is overly optimistic on Canada’s ability to capture U.S. growth, he said, adding that shockwaves from lower oil prices may also rattle consumer sentiment, business investment and the housing market.

That bearish outlook extends to the United States, where he sees the economy losing steam and predicts the U.S. Federal Reserve will only raise interest rates to 2 percent by 2017.

The U.S. federal funds rate stands at 0.25 percent. The median forecast of analysts polled by Reuters sees the fed funds rate at 2.25 percent at the end of 2016.

Despite his on-track Canadian rate cut call, the economist laughed at the thought of any wild celebration for his coup.

“We had to be fresh for the (European Central Bank) meeting.” (Reporting by Susan Taylor; Editing by Richard Chang)

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