Bank of Canada to hold rates steady, tone down inflation concern: Reuters poll

Thu Jul 10, 2014 12:18pm EDT
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By Leah Schnurr and Deepti Govind

(Reuters) - Worries about soft growth will keep the Bank of Canada from hiking interest rates until late next year although rising prices are expected to make it temper concerns about low inflation in its policy statement next week, a Reuters poll found.

The Canadian economy geared down at the start of the year, though not as much as the United States. Twenty-five of 33 economists said the fragile state of growth was one of the biggest factors keeping rate hikes at bay in Canada.

Thirteen analysts said concern about the high-flying loonie was another reason behind the central bank's neutral stance, which means a rate cut is as likely as a rate hike. Respondents were allowed to choose more than one option.

"Investments have improved but employment has not. There is still a significant amount of uncertainty and that is weighing on any decision to raise rates," said John Clinkard, chief economist at Deutsche Bank Canada.

The wider poll of 38 economists showed rates will stay at 1 percent, where they have been for almost four years, until the third quarter of 2015, when the Bank of Canada will lift rates by 25 basis points. That forecast is unchanged from May's poll.

Governor Stephen Poloz is expected to stick to the neutral tone the bank adopted last October when it shifted away from its tightening bias.

Despite the central bank repeatedly flagging downside risks to inflation in recent months, just seven economists said concern about a slow rise in prices was holding back rate hikes.

And 21 of 30 analysts said Poloz would tone down his language expressing concern over low inflation at next week's meeting. Still, he is expected to walk a fine line.   Continued...

A sign framed by maple leaves is pictured in front of the Bank of Canada building in Ottawa July 17, 2012. REUTERS/Chris Wattie