Mark Carney will offer his last major economic forecast as Bank of Canada Governor today while probably keeping interest rates where they’ve been since September 2010 and signaling his replacement will also have little need to act.
The rate on overnight loans between commercial banks will remain 1 percent for the 21st consecutive meeting in a decision at 10 a.m. in Ottawa, according to all 23 economists surveyed by Bloomberg. The statement and quarterly economic forecast will be followed by a press conference with Carney and the person economists say is most likely to take over when he leaves June 1 to head the Bank of England, Senior Deputy Governor Tiff Macklem.
Policy makers will cut their growth forecasts today and keep a phrase that rates will be on hold “for a period of time,” said Craig Alexander, chief economist at Toronto-Dominion Bank. Domestic spending is being hobbled by job losses and slowing home sales, while weak global demand is hurting investment and the exports that make up a third of output in the world’s 11th largest economy.
“The Bank of Canada is going to have to acknowledge that the economy has been delivering a weaker-than-expected performance,” Alexander said in a telephone interview. “There won’t be a pressing need to change policy while the mantle is being handed over.”
The economy will grow at just below a 2 percent annualized pace in the second quarter according to a Bloomberg economist forecast, less than the Bank of Canada’s January forecast of 2.7 percent. Carney, who says growth needs to be led by business investment and exports rather than household consumption, may push out his projection for when the economy reaches “full capacity” to early 2015 from the second half of 2014, according to Royal Bank of Canada strategists.
“Business investment is probably the area where they think there is the most risk,” said Nathan Janzen, an economist at Royal Bank of Canada in Toronto.
Suncor Energy Inc., the Calgary-based oil producer that’s Canada’s largest by market value, canceled its Voyageur joint venture with France’s Total SA on March 27 because costs rose and prices for bitumen declined. Total said it would book a $1.65 billion loss on the upgrader project that would have converted tar-like bitumen into a light, synthetic crude oil.
Canada’s economic growth of 1.5 percent this year will be the slowest among Group of 20 countries outside Europe as it grapples with a cooling housing market and as policy makers rein in deficits, the International Monetary Fund said yesterday in its World Economic Outlook. Finance Minister Jim Flaherty’s March 21 budget outlined the slowest spending growth since the 1990s to meet an election promise to eliminate a deficit by 2015.
Canada’s benchmark Standard & Poor’s/TSX Composite Index has risen 0.7 percent in the past year, lagging the 15 percent increase in the Standard & Poor’s 500 and the 13.3 percent gain in the Stoxx Europe 600 Index. Canadian government bonds have returned 1.1 percent this year through April 15, according to Bank of America Merrill Lynch Index data, trailing the 1.2 percent return of global government bonds excluding Canada.
Janzen, like Alexander, said policy makers won’t dilute their language about an eventual rate increase, something that was done at meetings in January and March. The previous announcement said “the considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required” to meet the bank’s 2 percent inflation target.
“We don’t think they are going to reduce that tightening bias, though it’s pretty watered down by now,” Janzen said. Macklem probably wouldn’t make any major policy change if he does replace Carney because he’s been involved in crafting the central bank’s current message, Janzen said.
The Bank of Canada should drop its bias to raise rates, according to a panel of academic and financial-market economists convened by the non-partisan C.D. Howe research group of Toronto. “Most members felt that the Bank of Canada should remove, from its next statement, an expression of its bias toward a potential increase in the overnight rate, and instead adopt a neutral bias in its language,” the group said in a report last week.
Signs of Canadian weakness cited by the panel included a report showing the country lost 54,500 jobs in March, new stimulus from central banks including the Bank of Japan, and weaker European growth.
“The economic numbers in Canada don’t look very good and the outlook is for more of the same,” said Ric Palombi, a fixed-income portfolio manager at McLean & Partners Wealth Management, in an April 11 interview in Calgary.
The central bank will probably reaffirm its open-ended bias toward raising rates, he said. “They have telegraphed that really well.”