Bank of Canada seen talking up risks to keep lid on C$ rebound

By Andrea Hopkins
TORONTO, April 11 (Reuters) - Bank of Canada Governor
Stephen Poloz is expected to talk up economic risks and play
down signs of stronger growth when the central bank sets
interest rates on Wednesday, anxious to keep a recovering
currency from choking off exports.
The central bank is widely expected to keeping rates on hold
on Wednesday even as it raises growth forecasts to incorporate a
stronger-than-expected start to the year and major stimulus
spending in the first budget from Canada's new Liberal
government. CA/POLL
While Poloz has repeatedly said it is up to the market to
set the Canadian dollar's level, economists said he is aware a
more cautious tone would keep the currency in a sweet spot that
fosters exports and extends the recovery from last year's
shallow recession.
"Most of their communication will try to keep the Canadian
dollar from strengthening," said Hosen Marjaee, senior managing
director, Canadian fixed income at Manulife Asset Management.
The Canadian dollar hit a 12-year low in January - helping
to boost non-resource exports and offset the shock of tumbling
oil prices - but has strengthened 14 percent since then.
The Bank of Canada is expected to bump up its forecast for
economic growth in 2016 from the anemic 1.4 percent forecast in
January to closer to 2.0 percent, said Mark Chandler, head of
Canadian fixed income and currency strategy at RBC Capital
Markets.
But even as it projects stronger growth at home, it should
point to global risks and signs of weakness in the United
States, said David Rosenberg, chief economist & strategist at
Gluskin Sheff & Associates.
"They can't ignore the fact that the U.S. economy has slowed
to stall speed after what was already tepid growth in the fourth
quarter," said Rosenberg.
Both Rosenberg and Chandler expect the Bank to use the
output gap - the difference between its estimate of the
economy's capacity and how much is actually being used - as a
way to rein in expectations for tighter monetary policy and keep
the Canadian currency in check.
By holding to its forecast that Canada will not take up all
the slack in the economy until the end of 2017, the central bank
would signal the economy is still a long way from overheating
and interest rates will not rise anytime soon.
Like other major central banks it believes in "lower for
longer," said Rosenberg.