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Signage for the TD Centre faces Bay Street in downtown Toronto on April 17, 2014.Fred Lum/The Globe and Mail

TD Bank is cutting its 2015 forecast for Canada's economy due to the drop in oil prices and predicting that the Bank of Canada will cut its key interest rate by another quarter of a percentage point in March.

TD says it now expects the Canadian economy to grow by 2 per cent this year compared with its expectation in December for 2.3 per cent growth in 2015.

TD estimates growth in 2016 will come in at 2.2 per cent.

The Bank of Canada surprised financial markets last week when it cut its overnight rate target by a quarter of a percentage point to 0.75 per cent.

Economists had expected to hold the rate at 1 per cent, where it had been since September, 2010, but Governor Stephen Poloz said low oil prices were "unambiguously negative" for the Canadian economy as he announced the rate cut.

The price of oil, which is trading for about $45 (U.S.) a barrel, is less than half of its highs of last year.

In its report, TD said lower oil prices will take a bite out of both output and incomes.

The bank predicts the U.S. benchmark price will average $47 this year and $65 in 2016, down from its December forecast of $68 in 2015 and $80 next year.

"Lower corporate profits will likely lead to a contraction in business investment and weaker employment growth relative to our December forecast," the TD report said.

"However, the story will play out very differently in various regions of the country, with oil-producing provinces bearing the brunt of the downward revisions."

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