MNI PREVIEW: Bank Of Canada To Hold, Focus On Hiking Bias

By Yali N'Diaye

     OTTAWA (MNI) - The Bank of Canada is widely expected to maintain its key

policy rate unchanged next week, with the focus on whether its bias will remain

towards hiking.

     While data has continued to indicate the economy is in a soft patch since

the Bank's March 6 statement, when it left its overnight rate target unchanged

at 1.75% and dropped a reference to the need to bring rates to neutral, citing

"increased uncertainty about the timing of future rate increases", Governor

Stephen Poloz said April 1 that below-potential growth would be temporary.

Exports and business investment should recover later this year, he said, despite

a "mixed" picture from data.

     GDP rebounded 0.3% in January despite a 0.6% drop in the energy sector.

Excluding energy, GDP rose 0.4% in January after edging up 0.1% in December.

     The 12-month inflation rate also increased to 1.9% in March from 1.5% in

February and 1.4% in January. Excluding a 4.4% drop in energy prices

year-over-year, CPI was up 2.2%. The BOC's preferred measures of underlying

inflation ticked higher in March as well.

     However, the central bank's Business Outlook Survey released Monday showed

inflation expectations moderated, with firms citing weakening economic activity.

This stemmed in part from the energy sector, which experienced lower prices at

the end of 2018, triggering mandated production cuts in Alberta. Elsewhere in

the economy, notably in services, "investment and employment intentions remain

healthy," the survey showed.

     Another source of concern for the BOC is household spending. Consumer goods

imports dropped 1.9% in February. And while retail sales surprised on the upside

Thursday with a 0.8% gain, in real terms, core sales, excluding autos and gas,

contracted 0.2%, their third consecutive decrease. Housing also remains weak.

Non-energy exports fell 4.0% in February.

     The BOC will likely want to keep rates low for longer. It will be important

to watch whether the Bank revises its estimates of the neutral range from

2.5%-3.5%.

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

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