Bank of Canada rates seen on hold until third-quarter 2015

(Reuters) - The Bank of Canada’s next interest-rate move is still expected to be a hike, but forecasters have pushed back their target for a tightening to the third quarter of 2015, a Reuters poll found on Thursday.

Bank of Canada Governor Stephen Poloz speaks during a news conference upon the release of the Monetary Policy Report in Ottawa January 22, 2014. REUTERS/Chris Wattie

None of the 30 economists in the poll expected an interest rate move at the central bank’s meeting on March 5.

The median forecast in the poll showed the Bank of Canada is expected to hike its main policy rate by 25 basis points to 1.25 percent at some point between July and September next year, three months later than predicted in a January poll.

Last October, the central bank abandoned its 18-month warning that the interest rate could one day rise, citing concerns about a soft economy and persistently weak inflation, which has remained below the 2 percent target for nearly two years.

As a result overnight index swaps, which move based on expectations for the central bank’s policy rate, have shown traders placing small bets on a rate cut.

But Governor Stephen Poloz said on Saturday two months of stronger inflation had made the bank feel “a little more comfortable”. He made the comments before a meeting of finance ministers and central bank chiefs from the Group of 20 leading economies in Sydney, Australia.

The poll’s findings suggest that analysts took the governor’s words at face value.

“The latest inflation reading ticked higher and the governor voiced some relief on that front and for that reason, it doesn’t look as if they are ready to cut rates at this point,” said Benjamin Reitzes, senior economist at BMO Capital Markets.

Canada’s annual inflation rate rose to 1.5 percent in January from 1.2 percent in December and was the highest reading since June 2012.

Many analysts think the Bank of Canada may be reluctant to cut rates due to the risk it could encourage heavily indebted households to borrow even more. <CA/HOMES>

In terms of the growth outlook, Poloz said on Saturday more data was needed before concluding if December’s economic stumble was weather-related or if it reflected an underlying trend. Retail sales, jobs, manufacturing and trade data all showed weakness during the month.

A Reuters poll conducted last week predicted a contraction in December’s monthly gross domestic product, while the annualized rate for the fourth quarter likely slowed to 2.5 percent from 2.7 percent in the third quarter.

But economists said the weak data was largely due to winter storms and cold temperatures that struck many parts of the country in December.

When asked if the stumble was due to the weather or if the economy actually took a turn for the worse, twenty-one of 24 analysts blamed the weather while three said neither reason applied.

Two economists mentioned in their comments that while bad weather did play a key role, the economy worsened as well.

“I don’t think December’s really reflective of a fundamental shift in growth but maybe more of a transitory impact on the economy than anything else,” said Mazen Issa, senior Canada macro strategist at TD Securities.

“When it comes to formulating monetary policy, they will look through that,” Issa added, drawing comparison with the U.S. Federal Reserve which did the same after a slowdown in that economy.

Reporting and polling by Deepti Govind in Bangalore; Editing by Jeffrey Hodgson and Meredith Mazzilli