UPDATE 1-Bank of Canada to discuss wildfire impact on May 25; says too soon now

Mon May 9, 2016 5:27pm EDT
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(Recasts with economists on monetary policy outlook)

By Leah Schnurr and Fergal Smith

OTTAWA/TORONTO May 9 (Reuters) - It is too early to assess precisely the economic impact of the Alberta wildfire, the Bank of Canada said on Monday, adding that it will have more to say in its interest rate decision later this month.

"Bank of Canada staff are closely analyzing these still-unfolding events, and we will have more to say on 25 May, and subsequently in the July MPR (Monetary Policy Report)," said spokeswoman Rebecca Ryall. The quarterly MPR provides the central bank's economic forecasts.

Markets have ratcheted up the odds of a Canadian interest rate cut by year-end as Alberta's raging wildfires disrupt oil production. But economists say the temporary interruption alone is unlikely to force the central bank's hand.

Following the wildfires and recent disappointing data, markets see a 40 percent probability of an easing by the end of 2016. At the start of May, markets were pricing in a 20 percent probability of a hike.

While economists have slashed forecasts for second-quarter growth, they also said the Bank of Canada is likely to look through the weakness.

"The fires are by their nature a transitory shock, not something you can address with monetary policy," said Andrew Kelvin, senior rates strategist at TD Securities.

Asked late last month about what it would take to consider cutting again, Governor Stephen Poloz said there would need to be a significant economic shock for policymakers to resume an easing bias.   Continued...