Bank of Canada focus on forecast, not interest rates

Thu Jul 16, 2009 4:51pm EDT
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By Ka Yan Ng and Frank Pingue

TORONTO (Reuters) - A forecast of a slightly less dismal economy could steal the Bank of Canada headlines next week, as the central bank holds true to its pledge of keeping interest rates at a historic low.

With zero chance of any change to interest rates, the focus will be on possible changes to economic projections, amid talk that the bank could nudge its forecast of a 3.5 percent annualized decline in second-quarter output to something closer to the 2.7 percent decline in the median forecast in a Reuters survey.

The Canadian economy shrank at an annualized 5.7 percent in the first quarter.

"At the end of the day not that much has really changed. A lot of the details have, but the bigger picture is more or less the same. It still looks like the economy is likely on track to begin recovery later this year," said Doug Porter, deputy chief economist at BMO Capital Markets.

"They will probably upgrade Canada a little. Some of it is just simply looking in the rearview mirror. The first quarter didn't turn out to be as weak as they thought it might be."

The Bank of Canada announces interest rates on Tuesday, and follows that with Thursday's release of its Monetary Policy Report (MPR), the first of a newly-expanded series.

The central bank said this month it will start providing markets with a more detailed explanation of its economic projections four times a year, instead of twice, beginning with its July 23 report.

Charmaine Buskas, senior economics strategist at TD Securities, said next week's rate announcement would be relatively low key, compared to the previous two announcements that focused on the burning questions of unconventional easing measures or the seemingly unstoppable rise in the Canadian dollar respectively.   Continued...