Silence from Bank of Canada bolsters market bet on October hike

OTTAWA (Reuters) - With no public speeches scheduled before its September interest rate decision, the Bank of Canada has signaled it is comfortable with market expectations that a rate hike won’t happen until October at the earliest, analysts said on Monday.

Bank of Canada Governor Stephen Poloz (R) and Senior Deputy Governor Carolyn Wilkins walk to a news conference in Ottawa, Ontario, Canada, July 12, 2017. REUTERS/Chris Wattie

The central bank’s July rate hike, the first in seven years, was preceded by a flurry of speeches and interviews by top officials that dramatically shifted the bank’s tone and alerted markets that a hike was coming.

With a second hike expected before the end of the year, the lack of summer speeches leading up to the Sept. 6 decision suggests the bank will wait until October to hike again.

“It probably means a rate move in September is off the table, because normally the bank would try to shape market expectations prior to meeting and they do that by speaking engagements,” said Sal Guatieri, senior economist at BMO Capital Markets.

Markets see a 70 percent chance of a rate increase at the bank’s October meeting, while traders see 40 percent likelihood the bank will move as soon as September. [BOCWATCH]

The next major event by a bank official comes after the September decision, with a speech by Deputy Governor Tim Lane on Sept. 18 and a speech and news conference by Governor Stephen Poloz on Sept. 27.

Poloz said in July he’d prefer markets look to data to determine when the next move would be rather than “hanging on to the bank’s every word,” but analysts said it is the bank’s interpretation that matters.

That makes Poloz’s September appearance the one to watch.

“He’ll be giving his updated views on the economy, given it’ll be quite a long time since he last spoke, and also reinforcing the reality that the interest rate cycle will be gradual in Canada,” said Nick Exarhos, economist at CIBC Capital Markets.

Signals aside, there isn’t a compelling reason to hike rates in back-to-back meetings, with indebted households already skittish about rising costs and concern that a more aggressive policy would exacerbate the headwind from the strengthening Canadian dollar.

“I don’t think they have prepared the markets for a September hike,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York. “October is a better chance.”

Reporting by Andrea Hopkins; Editing by James Dalgleish