Jan. 23 (Bloomberg) -- Bank of Canada Governor Mark Carney will probably keep his bias to tighten monetary policy today, driven by concern about household debt levels, even as he says economic growth will be slower than he previously forecast.
All 27 economists surveyed by Bloomberg forecast no change in the policy rate due at 10 a.m. in Ottawa, when the central bank will also release its quarterly monetary policy report that will probably include cuts to its growth projections.
Canadian bonds posted their worst returns since 2007 last year, trailing global peers, in part because the Bank of Canada is an outlier among Group of Seven central banks with its bias to tighten policy. While Bank of Canada Senior Deputy Governor Tiff Macklem reiterated a warning about record consumer-debt burdens in a Jan. 10 speech, he said the country’s economy has lost some momentum.
“The bank is focused on financial stability,” said Mazen Issa, Canada macro strategist at TD Securities in Toronto. The bias to raise rates will remain “as long as they are focused on that.”
Carney has repeated at every interest-rate announcement since April that withdrawal of stimulus may become necessary, while other central bankers have moved to ease policy.
The Bank of America Merrill Lynch Canada Broad Market Index of 1,224 bonds with C$1.2 trillion outstanding returned 3.7 percent in 2012, compared with 10 percent in 2011. The Global Market Index rose 5.7 percent last year.
Carney, who is leaving Canada’s central bank June 1 to lead the Bank of England, has warned for more than a year the economy is at risk from record household debt loads that have reached 165 percent of disposable income.
The central bank’s economic projections, last updated Oct. 24, overestimated the expansion in the second half of last year. Growth in the world’s 11th largest economy slowed to a 0.6 percent annual pace in the July-September period, short of the bank’s 1 percent forecast, as exports fell the fastest since the end of the 2009 recession.
The bank also projected 2.5 percent annualized growth in the final quarter of last year. The actual rate was probably about 1.2 percent, according to Derek Holt of Bank of Nova Scotia.
“We think the Bank of Canada is likely to come across somewhat more dovishly” even as it retains its rate guidance, Holt, vice-president of economics at Canada’s second-largest bank by assets, said in a preview of the monetary policy report. The main reason for keeping the language about higher rates is to curb expectations for rate cuts, he said.
The last Canadian rate decision on Dec. 4 reiterated that “over time, some modest withdrawal of monetary policy stimulus will likely be required.” Trading in overnight index swaps yesterday signaled investors have priced in only 11 basis points of tightening by the end of the year.
Tame inflation is also tempering the need for higher interest rates. The consumer price index advanced 0.8 percent in November from 12 months earlier, the slowest pace in more than three years. Carney’s main policy goal is keeping inflation in the middle of a 1 percent to 3 percent band.
Carney and Macklem, who economists predict will take over as Governor later this year, hold a press conference at 11:15 a.m. Today marks the first time the press conference and forecast have come on the same day as the rate decision. Previously they came at least one day later than the announcement.
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