Two surveys and a speech from the Bank of Canada haven’t changed the conviction of Bay Street economists that the central bank is unlikely to hike interest rates next week.

The Bank of Canada’s released the latest results of both its business outlook survey and its senior loan officer survey on Monday. BMO Capital Markets says that the former survey “showed little net change on the economic outlook”, with the balance of firms expecting higher sales and investment slipping modestly, while hiring intentions rose.

“The survey was conducted just as views on the U.S. outlook for 2011 were beginning to turn higher, and the results may only partially capture that improving tone,” BMO notes.

BMO says that capacity pressures remain modest, as do inflation expectations, and credit conditions continue to normalize. This improvement in credit conditions was echoed in the senior loan officer survey, BMO adds.

TD Economics says that the two surveys confirm that while the recovery has moderated, “it remains well-entrenched and the Canadian economy is well-placed for more balance growth in the coming quarters.”

However, none of this is expected to push the Bank of Canada to raise rates immediately, economists caution.

RBC Economics notes the surveys indicate continued optimism that the recovery will be sustained. Although RBC adds that businesses also find growth is being restrained by “strong competition and moderate demand”.

“Because of these headwinds, the Bank of Canada is expected to keep monetary conditions accommodative in the near term. Today’s surveys reinforce our expectation that a return to tightening mode will be delayed until the second quarter of 2011,” RBC concludes.

“Businesses expect the recovery to continue grinding ahead in 2011, but the results aren’t strong enough to prompt a quick response by the Bank,” agrees BMO. “With inflation expectations broadly stable and no serious capacity constraints, the Bank is likely to wait until late spring before restarting the rate‐hike campaign.”

Bank of Canada deputy highlights household debt growth

Also Monday, Bank of Canada deputy governor Agathe Côté, gave a speech in Kingston, Ont. TD notes that it was the first speech from a senior bank official since mid-December, and is the last one scheduled ahead the next interest rate decision scheduled for Tuesday, January 18.

“Deputy governor Côté honed in on the key domestic risk to the Canadian economic outlook,” TD says, adding that household debt growth has been a concern for the Bank for some time.

“As expected, the speech was not a channel to communicate a near-term change to the BoC’s monetary policy stance,” TD says. “While the topic is not directly related to its inflation-targeting mandate, it relates more directly to its role in promoting financial stability. The Bank is doing all it can to communicate clearly to Canadian households not to extrapolate low interest rates and to ensure their debts remain serviceable when interest rates inevitably rise.”

IE