Worries about soft growth will keep the Bank of Canada from hiking interest rates until late next year although rising prices are expected to make it temper concerns about low inflation in its policy statement next week, a Reuters poll found.
The Canadian economy geared down at the start of the year, though not as much as the United States. Twenty-five of 33 economists said the fragile state of growth was one of the biggest factors keeping rate hikes at bay in Canada.
Thirteen analysts said concern about the high-flying loonie was another reason behind the central bank's neutral stance, which means a rate cut is as likely as a rate hike. Respondents were allowed to choose more than one option.
"Investments have improved but employment has not. There is still a significant amount of uncertainty and that is weighing on any decision to raise rates," said John Clinkard, chief economist at Deutsche Bank Canada.
The wider poll of 38 economists showed rates will stay at 1 percent, where they have been for almost four years, until the third quarter of 2015, when the Bank of Canada will lift rates by 25 basis points. That forecast is unchanged from May's poll.
Governor Stephen Poloz is expected to stick to the neutral tone the bank adopted last October when it shifted away from its tightening bias.
Despite the central bank repeatedly flagging downside risks to inflation in recent months, just seven economists said concern about a slow rise in prices was holding back rate hikes.
And 21 of 30 analysts said Poloz would tone down his language expressing concern over low inflation at next week's meeting. Still, he is expected to walk a fine line.
"It will be necessary to acknowledge the above-forecast core CPI (consumer price index) trend, but Governor Poloz will do so as dovishly as possible in order to avoid sparking concerns about earlier rate hikes that might send the Canadian dollar stronger," said Avery Shenfeld, chief economist at CIBC World Markets.
Data last month showed the inflation rate rose to a 27-month high in May at 2.3 percent, stronger than expected and higher than the Bank of Canada's 2 percent inflation target. The increase caught the market by surprise and has been a major driver of the currency's rally.
More than half the economists polled said the stronger Canadian dollar, currently trading near a six-month high at $1.067 to the greenback, or 93.72 U.S. cents, will not trouble Poloz enough for him to voice it.
"The loonie is not at a critical level ... for the BoC to intervene directly in the markets or to 'talk down' the loonie," said Sebastien Lavoie, economist at Laurentian Bank Securities.
The central bank is hoping to see exports emerge as a greater driver of economic growth, replacing a boom in housing and consumer debt.
"The Bank of Canada is undoubtedly concerned about all of the above, but it has made no secret that it is hoping for a pick up in exports and business investment to provide more robust and reliable support for growth," said Mark Hopkins at Moody's Analytics.
"Raising interest rates prematurely would undermine that goal by discouraging borrowing and driving up the value of the loonie."
(Polling and additional reporting by Anu Bararia; Editing by Jeffrey Hodgson and Meredith Mazzilli)