By Promit Mukherjee
OTTAWA, July 15 (Reuters) - The Bank of Canada is widely expected to keep its benchmark rate unchanged on Wednesday as concerns over a recent spike in inflation remain contained and economic growth stays subdued.
Canada's annual headline inflation breached the BoC's 3% upper target in May for the first time in nearly 2-1/2 years. However, the increase was largely driven by gasoline prices, which have since eased, giving policymakers little reason to adjust the policy rate.
GDP growth
has been uneven. The economy entered a technical recession at the end of March but rebounded strongly in April, suggesting there is little need for additional monetary stimulus.
"Even with the high oil prices that we saw earlier in the year, we haven't seen any material evidence of pass-through into underlying inflation," said Randall Bartlett, senior director of Canadian Economics at Desjardins Group.
"And then on the downside, there's really just a lot of uncertainty as to where trade is going," he said.
Although Canada's economy has weathered U.S. sectoral tariffs imposed since last year, uncertainty over trade policy and the future of the North American Free Trade Agreement continues to weigh on business investment and hiring.
With inflation remaining above target while economic growth remains subdued, economists say the case for leaving interest rates unchanged is stronger than that for either a hike or a cut.
The BoC's policy rate of 2.25% sits at the lower end of the bank's estimated neutral range and is generally considered sufficiently accommodative to provide modest support to the economy without fuelling inflation.
All 36 economists surveyed by Reuters expect the central bank to hold rates, with a majority forecasting no change until at least July next year.
Money markets are fully pricing in the BoC holding rates on Wednesday and see little chance of a move through year-end. That marks a sharp shift from early last month, when traders had priced in a 25-basis-point increase.
The policy decision will be accompanied by the bank's quarterly Monetary Policy Report, and economists widely expect the BoC to revise its growth and inflation forecasts for this year.
The decision will be released at 9:45 a.m. ET, followed by a press conference with Governor Tiff Macklem and Senior Deputy Governor Carolyn Rogers.
(Reporting by Promit Mukherjee; Editing by Aurora Ellis)
