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Bank of Canada to deliver one-two punch of policy decisions Wednesday

January 25, 2013

OTTAWA • With the Bank of Canada stuck in a holding pattern for interest rates, expect that apparent lack of action by the central bank to be made up by sheer volume this week.

Monetary policymakers will deliver a one-two punch on Wednesday, combining their latest interest-rate decision — though nothing is expected on that front — with the central bank’s latest quarterly outlook for the domestic and global economies.

Until now, the eight-times-a-year rate decision was delivered in Ottawa at 9 a.m., usually on Tuesdays. The bank’s Monetary Policy Report was previously released four times a year on Wednesdays at 10: 30 a.m., followed with a news conference by the bank governor.

Starting Wednesday, the rate decision and MPR, which will continue to be released quarterly, both come out at 10 a.m. on Wednesdays, with bank chief Mark Carney — who leaves the post on June 1 — facing reporters at 11:15 a.m.

The bank’s double-barreled rate announcement and MPR — intended to streamline the release of market sensitive information — are sandwiched between some key pieces of economic data this week.

Monday’s reading on Canada’s wholesale trade activity came in at a slightly better-than-expected 0.7% increase for November. That followed last week’s even more surprising 1.7% jump in manufacturing sales during the same month.

November’s retail sales numbers will be released Tuesday, followed on Friday by the consumer price index for December.


With inflation running at a rate of 0.8% in November compared to a year earlier — well below the Bank of Canada’s target of 2% — and the economy limping along at a sub-par pace in the fourth quarter, policymakers are not likely to begin nudging borrowing costs above the current level of 1% until late 2013 or early 2014.

Economic growth, meanwhile, is also expected to be weak until at least the second half of 2013.

The Bank of Canada’s previous forecast for 2.3% expansion this year is expected to be lowered on Wednesday to around 2%, in line with the outlook from the Finance Department and many economists.

Given the weak inflation and economic growth, analysis say Mr. Carney and his policy team will stick to their previous rate-increase script, saying Wednesday that “over time, some modest withdrawal of monetary policy stimulus will likely be required, consistent with achieving the 2% inflation target.”

Charles St-Arnaud, an economist at Nomura Securities in New York, said Wednesday’s central bank policy statement is also likely to highlight the fact that international oil prices are much higher than what Canadian producers actually receive.

“Given its persistence and its negative impact on the economy, we think that the MPR could contain an explicit estimate of the economic impact of such a differential,” he said in a note to investors.

The Bank of Canada could also ramp up its view of the Canadian dollar, “since the current level is not fully supported by commodity prices due to the low Canadian oil prices,” he added.

While employment gains have been strong — if not sporadic and unpredictable — Canada’s export market has been stumbling in light on the strong loonie and global uncertainty in general.

“Despite the anticipated forecast cuts, there aren’t any signs the Bank of Canada is going to drop its mild long-term [rate] tightening bias,” said BMO Capital Markets economist Benjamin Reitzes.

“There could be some signal that concerns about household imbalances are a driver of the tightening bias.”

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