Friday, July 11, 2014

Bank of Canada to hold rates steady, tone down inflation concern: Reuters poll

"It will be necessary to acknowledge the above-forecast core CPI (consumer price index) trend, but Governor Poloz will do so as dovishly as possible in order to avoid sparking concerns about earlier rate hikes that might send the Canadian dollar stronger," said Avery Shenfeld, chief economist at CIBC World Markets.
Data last month showed the inflation rate rose to a 27-month high in May at 2.3 percent, stronger than expected and higher than the Bank of Canada's 2 percent inflation target. The increase caught the market by surprise and has been a major driver of the currency's rally.
More than half the economists polled said the stronger Canadian dollar, currently trading near a six-month high at $1.067 to the greenback, or 93.72 U.S. cents, will not trouble Poloz enough for him to voice it.
"The loonie is not at a critical level ... for the BoC to intervene directly in the markets or to 'talk down' the loonie," said Sebastien Lavoie, economist at Laurentian Bank Securities.
The central bank is hoping to see exports emerge as a greater driver of economic growth, replacing a boom in housing and consumer debt.
"The Bank of Canada is undoubtedly concerned about all of the above, but it has made no secret that it is hoping for a pick up in exports and business investment to provide more robust and reliable support for growth," said Mark Hopkins at Moody's Analytics.
"Raising interest rates prematurely would undermine that goal by discouraging borrowing and driving up the value of the loonie."

(Polling and additional reporting by Anu Bararia; Editing by Jeffrey Hodgson and Meredith Mazzilli)