October 18, 2013 / 6:25 PM / 4 years ago

Bank of Canada seen on hold until late 2014: Reuters poll

A cyclist rides past the Bank of Canada building in Ottawa July 17, 2012.Chris Wattie

(Reuters) - The Bank of Canada will likely keep interest rates on hold at low levels for another year and analysts have largely embraced the central bank's new and more open communication strategy, a Reuters poll showed on Friday.

The 34 economists polled unanimously expect the Bank of Canada to keep rates at 1 percent when it makes its next policy decision on Wednesday, given the potential for the U.S. Federal Reserve to maintain its economic stimulus longer than had been expected.

Governor Stephen Poloz will answer questions about the economic outlook when the central bank releases its revised growth forecast at the Oct 23 meeting, and investors will likely try to gauge the fallout from the recent U.S. budget standoff.

The impasse among U.S. lawmakers resulted in a two-week partial government shutdown that could hamper economic growth in the United States, Canada's largest trading partner.

"The risk is increasing towards an early 2015 first hike rather than a mid-2014 first hike, given the unexpected drag from the partial shutdown and potential snowball impacts on decision-making for U.S. households and businesses for the remainder of the year and beyond," said Sebastien Lavoie, assistant chief economist at Laurentian Bank.

Even so, Laurentian is still forecasting the next tightening in the fourth quarter of 2014.

The Bank of Canada was the first Group of Seven central bank to raise interest rates following the 2008-09 recession, though it has held rates at 1 percent since 2010.

Economists were divided over whether the tightening bias introduced by former Bank of Canada Governor Mark Carney was still in effect. Carney, who handed over to Poloz in June, had used language making clear the next interest rate move would be an increase.

Asked if they think the central bank still has a tightening bias, 16 of those polled said yes but 13 said no. Those same 16 also expect the central bank to retain that bias come Oct 23, and no one polled predicted the bank would explicitly drop it.

While low rates have supported economic growth and helped fuel a housing boom, they've also raised concerns among policymakers that Canadians are taking on too much debt.

The central bank wants to see growth shift toward the export sector, though Poloz said recently that the country's economic growth has disappointed so far.

The median forecast of over 30 economists was for rates to stay at 1 percent until the fourth quarter of 2014, unchanged from the most recent Reuters poll done in August. The bank is expected to raise rates by 25 basis points when it does make a move.

The 12 primary securities dealers polled expected the same. Primary dealers deal directly with the Bank of Canada.

NEW COMMUNICATION

The Reuters poll also showed forecasters largely approve of the Bank of Canada's new communication strategy, which they expect will provide more clarity to monetary policy.

Poloz has already given his deputies more room to update the bank's outlook in their speeches rather than wait for the Bank's quarterly monetary policy reports.

Earlier in October, Senior Deputy Governor Tiff Macklem sharply cut the central bank's forecast for third-quarter growth, sounding a gloomier note than Poloz had in a speech two weeks previous.

Poloz later said they were both saying the same thing, and analysts expect the Bank of Canada will still speak with a more unified voice than that of the U.S. Federal Reserve, where policymakers routinely offer differing opinions.

Of those polled, 15 said the new strategy would provide more clarity, while eight disagreed.

"The bank is tending to speak too single-mindedly and when there is a great deal of uncertainty, more discussion I find (is) helpful," said David Watt, chief economist at HSBC Bank Canada.

"There is a risk that it could create some noise but I think that I would rather have more information than less with regard to what the Bank of Canada is discussing."

Editing by Jeffrey Hodgson and Meredith Mazzilli

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