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Financial market players sideswiped by a shock Bank of Canada rate cut a year ago will scour a speech by Governor Stephen Poloz on Thursday for hints of further easing given depressed crude oil prices and flagging economic growth.
The central bank has dropped explicit forward guidance, so any change in bias is expected to be subtle ahead of a Jan 20. interest rate announcement.
Nonetheless, "it is an opportune time to clearly signal that things are not evolving as they had anticipated in October," said David Watt, chief economist at HSBC Bank Canada.
The market has implied a less than 25 percent probability of a January rate cut, but the likelihood of a rate cut by mid-year has approached 80 percent.
Poloz expressed cautious optimism about Canada's economic recovery in an interview with Reuters on Dec. 18, although he said the trend in growth is likely "quieter" than the rebound in the third quarter suggested.
Indeed, the central bank's 1.5 percent projection for fourth quarter growth may prove too optimistic.
"They are going to have to lower their forecasts for Q4 and 2016," said Watt, who expects a rate cut this month.
The central bank stuck its neck out with a completely unexpected interest rate cut in January 2015 in response to the oil price crash.
It followed up with another rate cut in July as the economy saw two consecutive quarters of negative growth, leaving its main policy rate at 0.50 percent. Its floor just after the financial crisis was 0.25 percent.
Poloz will speak on the topic "Life After Liftoff: Divergence and U.S. Monetary Policy Normalization," with a press conference to follow.
In its most recent interest rate statement in December, the Bank of Canada said "policy divergence is expected to remain a prominent theme."
The U.S. Federal Reserve has since raised interest rates for the first time in more than nine years, while its median projected target interest rate implied four quarter-point hikes in 2016.