The Bank of Canada will probably keep its bias to tighten interest rates in the future, even with its growth forecast declining and exports remaining lower than before the recession, as it holds its key policy rate steady.
The benchmark rate will remain at 1 percent, where it’s been for more than three years, in a decision at 10 a.m. in Ottawa, according to all 23 economists surveyed by Bloomberg News.
Removing language about raising interest rates “would be a far more dovish statement then they are probably wanting to make at the moment,” said Nathan Janzen, an economist at Royal Bank of Canada in Toronto. “The risk from the Bank’s side is that markets interpret the removal of a ‘tightening bias’ as a shift to an easing bias, even if that does not really represent the Bank’s thinking.”
Governor Stephen Poloz said earlier this month that output has fallen short of the bank’s expectation, while Senior Deputy Governor Tiff Macklem said that second-half growth will be below its earlier forecast, citing an “elusive” rotation to exports and investment from indebted consumers.
“We will be watching to see how they describe the external backdrop -- whether they are becoming more or less confident in that long-awaited recovery in external demand,” Janzen said.
Canada’s trade deficit unexpectedly widened for a second month to C$1.31 billion in August, marking the 20th straight monthly shortfall. The country’s inflation rate of 1.1 percent is close to the bottom of the central bank’s target band and employment growth has slowed this year.
“They are going to acknowledge growth has been softer but stick to their messages that growth is going to bounce back,” said Krishen Rangasamy, senior economist at National Bank Financial in Montreal.
The central bank may move back its projection of when the economy will reach full output from its July estimate of mid-2015, said Rangasamy, who predicts growth next year of 2.2 percent, below the bank’s 2.7 percent prediction in July.
Macklem said in an Oct. 1 speech that the economy will have to grow at an annual rate of “at least 2.5 percent” to absorb the “material degree of slack in the economy.” He also said growth in the second half of this year would be “in the 2 to 2.5 percent range,” compared with the bank’s July prediction for quarterly gains of 3.8 percent and 2.5 percent.
Business optimism over new investments fell to a four-year low in the central bank’s survey published earlier this month. The balance of opinion for investment intentions declined to 7 percentage points from 9 points in the third-quarter survey, extending a slide from a peak of 36 points three years ago.
BlackBerry Ltd. of Waterloo, Ontario, the country’s biggest spender on research and development, has announced plans to fire 4,500 workers and is seeking a buyer for the company after sales of its signature smartphones collapsed.
Poloz himself has said the economy’s rotation to growth led by business investment and exports is taking longer than anticipated.
“It’s fair to say that growth has disappointed us to this stage,” Poloz told reporters Oct. 11 in Washington during meetings of Group of 20 officials. “We are behind where we thought we would be let’s say a year ago, or even for that matter six months ago.”