REPEAT: Analysts: BOC May Set Table For Later Hikes Wednesday

--Repeats Story Initially Transmitted at 08:45 am ET Dec 5

--Jobs Strength Cannot Be Denied, Analysts Say

By Courtney Tower

     OTTAWA (MNI) - Astonishing jobs growth aside, the data the Bank of Canada

monitors is mixed as guides to the future and provide no impulse to change the

BOC's 1.0% policy interest rate on Wednesday, analysts said.

     However, the huge 79,500 growth in jobs in November, bespeaking a clearly

tightening labor market - an average of 33,000 jobs created per month for the

last 12 months - cannot be denied by the BOC as a positive force permeating the

economy. Analysts expect the BOC to modify its reticence about that strength and

its effect on household spending which, since the 2008-2009 recession, has

propped up Canadian growth.

     However, "we don't have a picture yet of fourth quarter growth this year

and we think the Bank will want to have that picture fully formed before

changing the overnight rate," Avery Shenfeld, CIBC chief economist, told MNI.

     "The general picture, of course, leans to hikes down the road," he said,

"but the Bank will be waiting for enough evidence in place to time that change."

     Shenfeld's guess is for early in 2018. Several economists put that time as

April, when the BOC makes a rate decision and publishes its quarterly analysis

of the Canadian and global economies. Krishen Rangasamy of the National Bank

thinks it could be as early as January 17, also with a Monetary Policy Report,

with strong data forcing the BOC to move off its cautionary stance and move

fairly early on. "Though they won't change the rate on Wednesday, they can't

deny the improving economy and in their statement may set the table for a more

hawkish future," he told MNI.

     The main point taken from the data so far is that the slowdown the BOC has

anticipated, with private economists, for 2018 and beyond may be less pronounced

than hitherto thought.

     Consider these: Last Friday's November jobs picture by Statistics Canada, a

huge rise of 79,500 new ones created in the month for a solid year of monthly

gains; unemployment now at 5.9%, a significant drop in the annual rate;

consumption continues fast-paced; GDP third quarter growth was a respectable

1.7%; average hourly wages now growing more rapidly.

     On the other hand, the GDP picture presented a sharp decline in exports,

after sluggish months. That drop alone dragged GDP growth down substantially.

     Moreover, the export scene has somewhat weakened business expectations of

spending on plant and equipment, although there has been some improvement in the

previous quarter. The BOC has long looked to rising exports and rising business

investment as the two chief pillars of the economy for the future, and so cannot

be sanguine about it either, analysts say.

     Other chief factors persuading the BOC to wait and see are those the Bank

has often foreshadowed and just a week ago in its Financial Stability Review.

These include mainly the imperiled NAFTA negotiations and United States policies

on protectionism. Other uncertainties include the lagged effects on mortgage

lending in future of the July and September BOC rate increases this year and the

impacts on previous and future restrictive guidelines to lenders on mortgages

set out by the federal regulator, Paul Ferley, assistant chief economist at RBC,

told MNI.

     While some analysts see slowing housing sales and prices in Greater Toronto

and Greater Vancouver dragging the economy down, Ferley and others see this as a

good and beneficial moderation in unsustainably overheated housing.

     Ferley also is less fazed than others about the recent sharp drop in

exports. The RBC sees that 10% monthly decline being matched by a 10% increase

in exports for the fourth quarter. His main reason: a strongly improving U.S.

economy.

     Benjamin Reitzes of BMO expects no change on Wednesday but that it is clear

that labor market slack which concerned the BOC has tightened. "I think they

will have to recognize that, put it on the table at least, on Wednesday," he

said.

     Overall, "the economy is in good shape and, with the various uncertainties,

there is no hurry about changing the overnight rate," he said. BMO expects the

fourth quarter to show 2.5% GDP growth this year. BMO sees 2.2% growth

annualized for 2018, again well up on BOC predictions.

     "Even though they won't change the rate on Wednesday, they do have to set

the table for rate hikes starting in early 2018," Krishen Rangasamy of National

Bank said. "Their very dovish attitude of many months will have to be modified a

bit," he said.

     As for the uncertainties cited by the Bank so often, "that's what they

always cite when they don't want to raise rates," Rangasamy said. "There always

are uncertainties, at any time."

     David Madani, of Capital Economics agrees that the BOC will wait and be

cautious. "They're in the dark about how sensitive housing will be to the two

rate hikes they made earlier this year," he told MNI. "They probably will wait

another six months." For Capital Economics, the basic "structural imbalances in

the economy, principally in housing," are what counts for a central bank whose

decisions take six to eight quarters to take full effect in the economy.

     The long-term imbalances in the housing market will eventually have to be  

  recognized, probably in a reversal of rate hikes, next year, Madani said.

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