The report's author, CIBC chief economist Jeff Rubin, said interest rates will be pushed higher over the next 12 months as a result of "unrelenting pressure" on food and energy prices, which will also push energy and material stocks to "new record highs."

While Rubin suggested the BOC may deliver one more rate cut, he noted, "…markets will be surprised at how rapidly the bank is compelled to take back those easings." In the report, Rubin said he expects a tightening of 100 basis points by the end of next year.

The Bank of Canada has reduced its prime rate by a total of 150 basis points since it began easing in December and overnight indexed swaps are currently pricing in an 81% chance of a 25 bps cut at its next meeting on June 10.

Rubin is currently forecasting the price of oil to reach $130 a barrel, while he expects natural gas to hit $13 per million BTUs in 2009 as a result of supply issues and surging demand. As such, he has increased his weighting in energy stocks.

"We remain wary of near-term market volatility," he wrote in the report. "But the strength of the resource market, particularly energy, and a gradual recovery in the U.S. economy should see the TSX justify our equity weighting." Rubin is projecting that the TSX will reach 16,200 by the end of 2009.

By Stephen Huebl, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Cristina Markham, This email address is being protected from spam bots, you need Javascript enabled to view it