(Recasts with economists on monetary policy outlook)
By Leah Schnurr and Fergal Smith
OTTAWA/TORONTO, May 9 (Reuters) - It is too early to assess
precisely the economic impact of the Alberta wildfire, the Bank
of Canada said on Monday, adding that it will have more to say
in its interest rate decision later this month.
"Bank of Canada staff are closely analyzing these
still-unfolding events, and we will have more to say on 25 May,
and subsequently in the July MPR (Monetary Policy Report)," said
spokeswoman Rebecca Ryall. The quarterly MPR provides the
central bank's economic forecasts.
Markets have ratcheted up the odds of a Canadian interest
rate cut by year-end as Alberta's raging wildfires disrupt oil
production. But economists say the temporary interruption alone
is unlikely to force the central bank's hand.
Following the wildfires and recent disappointing data,
markets see a 40 percent probability of an easing by the end of
2016. At the start of May, markets were pricing in a 20 percent
probability of a hike. BOCWATCH
While economists have slashed forecasts for second-quarter
growth, they also said the Bank of Canada is likely to look
through the weakness.
"The fires are by their nature a transitory shock, not
something you can address with monetary policy," said Andrew
Kelvin, senior rates strategist at TD Securities.
Asked late last month about what it would take to consider
cutting again, Governor Stephen Poloz said there would need to
be a significant economic shock for policymakers to resume an
easing bias.
So far, the wildfires do not appear to fit the bill.
Economists expect growth lost in the second quarter will be
restored in the third as rebuilding begins.
"If this wildfire proves to be a temporary setback for
Canada's energy industry, I don't expect it to change the
trajectory of monetary policy," said Bill Adams, senior
international economist for PNC Financial Services Group (NYSE:PNC).
It will require second-round effects of the wildfire to
trigger a rate cut, such as weaker equity prices and consumer
confidence, said Mark Chandler, head of Canadian fixed income
and currency strategy at RBC Capital Markets.
The best thing the bank can do is keep an accommodative
tone, which will help weaken the currency, said Frances Donald,
senior economist at Manulife Asset Management.
"The fires are going to add to what I expect to be a more
dovish bias heading into the May 25 meeting anyway, but it is
unlikely the Bank of Canada cuts directly in response," said
Donald.
(Editing by Dan Grebler)