By Promit Mukherjee
OTTAWA, April 29 (Reuters) - The Bank of Canada is expected to keep its benchmark interest rate at 2.25% on Wednesday and update its inflation and growth forecasts after the oil price shock, economists said.
This will be the central bank's first set of projections since the February 28 beginning of the Iran war, which has driven up crude and gasoline prices, raising concerns that those price increases could lead to sustained inflationary pressures economy-wide.
Money markets are
pricing in no move in interest rates, and betting on one 25 basis-point rate hike by the fourth quarter.
Economists expect no change in the overnight rate for the rest of the year, according to a Reuters poll, with many still leaning toward a cut given weak economic conditions.
The Bank of Canada "can tolerate a specific shock in energy prices if it doesn't fan out in a broader inflation," said Doug Porter, chief economist at BMO Capital Markets.
Porter said he expects rates to remain on hold as Canada's economic weakness and uncertainty over the fate of the North American free-trade deal outweigh inflation concerns.
The BoC will announce its monetary policy decision on April 29 at 9:45 a.m. ET (1345 GMT). It will also release the quarterly Monetary Policy Report, where the central bank presents its forecasts on the economy and inflation.
Governor Tiff Macklem has said previously that the BoC would not be worried if short-term inflation expectations rise as a result of the war.
But BMO's Porter said markets will closely watch Macklem's comments for clues on how the Governing Council is assessing the effects of the war on Canada's economy. The nation is a large exporter of oil, so higher prices could benefit that industry.
(Reporting by Promit Mukherjee; editing by David Gaffen)
