MNI BOC State of Play: Tightening Yes, But Timing Could Slow

By Yali N'Diaye

     OTTAWA (MNI) - Several analysts are forecasting a third interest rate hike

as soon as next month, but Bank of Canada Governor Stephen Poloz' comments

Wednesday indicated the timing could slow after two back-to-back 25 basis point

rate hikes in July and September.

     "At a minimum," economic progress has shown that the insurance provided in

2015 in the form of a cumulative 50 basis point rate cut "is no longer needed,"

he said in a speech, repeating growth is becoming more broadly based and self

sustaining.

     While this is a sign that tightening remains on the mind of the central

bank, its chief stressed the "number of important unknowns around the inflation

outlook", making the central bank "particularly data dependent."

     "There is no predetermined path for interest rates from here," he said,

adding "we could still be surprised in either direction."

     As a result, "we will continue to feel our way cautiously as we get closer

to home," he said, home being the point where the economy operates at full

capacity and the inflation rate is at the 2% mid-range target.

     In addition, while the central bank expects the temporary factors that have

been holding down inflation to dissipate in months ahead, "recent exchange rate

developments could affect this timing." Such comments come after Deputy Governor

Timothy Lane warned earlier this month that the Canadian dollar strengthening

will "pretty strongly" be taken into account.

     With the emphasis back on heightened uncertainty and the BOC taking note of

the Canadian dollar appreciation, the tightening process could take a pause in

October, especially with the most recent data having reflected a weakening

growth pace after the "huge" 4.5% annualized second quarter GDP growth figure.

--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com

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