Early signs of an economy moving toward full economic health
probably won’t be enough to prompt Bank of Canada Governor Stephen Poloz to
alter the stance of monetary policy Wednesday.
The target for overnight loans between commercial banks will
remain 1% for a 29th meeting in a decision at 10 a.m. New York time, according
to all 18 economists surveyed by Bloomberg News. Poloz will speak to reporters
from Toronto 30 minutes later.
Poloz has said he’s “neutral” about the next policy move and last
week highlighted the risks posed by persistently slow inflation. Wednesday’s
statement will maintain that message, even after stronger-than-expected data
and price gains exceeded the bank’s last quarterly forecast, said CIBC World
Markets economist Peter Buchanan.
“Lowflation” has been the bank’s major concern, Buchanan said.
“Too candid a recognition that deflation is less of a threat could see unwanted
upward pressure on the currency,” he said, which could crimp export growth.
Poloz sets interest rates aiming inflation at the 2% midpoint of a
1% to 3% target band. The annual inflation rate slowed to 1.1% in February from
1.5% the month before, Statistics Canada reported March 21. Data for March are
scheduled to be published April 17, with economists surveyed by Bloomberg
forecasting a 1.4% rate.
While price increases have been stronger than 0.9% the central
bank forecast in January, “it’s unlikely the Bank of Canada will fully back off
their inflation concerns,” said Benjamin Reitzes, a senior economist at BMO
Capital Markets in Toronto.
Other Improvements
Other economic indicators have shown improvement in the world’s
11th-largest economy. Canadian employment surged in March, climbing almost
twice as fast as economists forecast with 42,900 new jobs, and gross domestic
product rebounded with a 0.5% gain in January. Factory sales in February jumped
1.4%, to reach the highest level since 2008 before the last recession.
The consumer-price index in the U.S. rose 1.5% in March from a
year earlier, a Labor Department report showed yesterday in Washington, which
may alleviate concerns about too- low inflation among Federal Reserve policy
markers.
The Canadian dollar declined 5.4% in the last six months through
Wednesday, the second-weakest performance after South Africa’s rand among the
16 major currencies tracked by Bloomberg, as Poloz shifted to a neutral policy
stance. The weaker dollar may help boost inflation by making imports more
expensive, as well as boosting exports, three-quarters of which are bound for
the U.S.
Growth Rotation
Policy makers have been counting on a rotation of growth to
exports and business spending from indebted consumers. The International
Monetary Fund said last week that shift hasn’t yet emerged and said monetary
policy should remain stimulative.
Canada may still benefit from demand for exported commodities and
the weaker currency according to some executives.
“The drop in the Canadian dollar relative to the U.S. dollar
fundamentally helps our business,” Don Althoff, Chief Executive Officer of
Calgary-based pipeline operator Veresen Inc., said in an April 11 telephone
interview.
Bloomberg.com
Bloomberg.com
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