Bank of Canada to keep rates steady next week; hike in third quarter 2015

Wed Apr 9, 2014 3:09pm EDT
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By Louise Egan

OTTAWA (Reuters) - The Bank of Canada is unlikely to raise interest rates until the third quarter of 2015, possibly later than the U.S. central bank, and will stick to a staunchly neutral stance in its policy statement next week, a Reuters poll of analysts showed on Wednesday.

The Canadian central bank may forecast a slightly higher profile for inflation in its quarterly Monetary Policy Report (MPR) on April 16, and it may sound upbeat about the positive effects on Canada of a strengthening U.S. economy.

But it won't feel confident enough to let down its guard on the threat of disinflation, let alone signal any shift in bias towards eventually raising rates, analysts who participated in the poll said.

None of the 36 analysts surveyed expected an interest rate move next week. Only two predicted a hike by the end of this year.

The median forecast in the poll was for the bank to raise the overnight target rate by 25 basis points to 1.25 percent at either its July or September 2015 announcement dates. That is unchanged from a previous Reuters poll published on February 27.

With policy moves a long way off, markets will watch for any changes to the bank's quarterly projections, or, in particular, in its tone on inflation, as well as its views on gross domestic product growth in Canada and the United States.

"If anything, I think the focus will be on the inflation narrative," said Mazen Issa, senior strategist at TD Securities in Toronto. "We know that growth is going to be a little bit wonky in the near term and they'll look through that, and so should the market and everyone else."

The inflation rate has been below the bank's 2 percent target for nearly two years. The risk of disinflation is the main reason Governor Stephen Poloz shifted the bank's stance into neutral last October after 18 months of signaling rate hikes were on the horizon.   Continued...

Bank of Canada Governor Stephen Poloz speaks during a news conference upon the release of the Monetary Policy Report in Ottawa January 22, 2014. REUTERS/Chris Wattie