Bank of Canada may sound dovish in May statement, hike seen next year: Reuters poll

Thu May 19, 2016 11:49am EDT
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By Leah Schnurr and Anu Bararia

OTTAWA/BENGALURU (Reuters) - The Bank of Canada is expected to strike a more dovish tone in its May policy statement, partly due to a still-raging wildfire in Alberta that has disrupted oil production, but a Reuters poll suggests it will not cut interest rates again.

The survey of more than 40 economists this week showed the central bank will probably not move to adjust rates again until the third quarter of next year, when it is expected to raise rates by 25 basis points to 0.75 percent.

The economists' responses suggested a greater likelihood that the bank's next move will be a hike, about a three-in-four chance, compared with a one-in-five chance of another rate cut.

The central bank is almost unanimously expected to leave rates unchanged when it makes its policy announcement on May 25, with most of those polled arguing a rate cut was not the right remedy for a likely temporary setback for the economy.

Only one contributor forecast a rate cut next week. Even the number of people expecting a rate cut some time this year fell from a month earlier.

Wildfires have closed in on Fort McMurray in Alberta, a major oil-producing province which has already been severely hit by the oil price shock of 2014. The inferno has forced the mass evacuation of people and triggered the shutdown of key oil sands production facilities.

"It is appropriate for the Bank of Canada to simply acknowledge the wildfires' impact on the economy," said Sebastien Lavoie, assistant chief economist at Laurentian Bank Securities.

"But monetary policy is a blunt and ineffective instrument for factors putting a temporary dent into economic activity."   Continued...

Pedestrians are reflected in a window while walking past the Bank of Canada office in Ottawa March 4, 2015.  REUTERS/Chris Wattie