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These are stories Report on Business is following Wednesday, Jan. 21, 2015.

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Poloz to cut forecast
Expect the Bank of Canada today to paint a bleaker picture of economic growth this year, one that takes into account the incredible collapse in oil prices.

That could well whack the Canadian dollar again, by the way.

Private sector economists have already scaled back their outlook, as have groups such as the International Monetary Fund, and observers now expect interest rates will stay lower for longer.

Some in the markets are even betting that the central bank could trim its key rate at some point over the next year from its current 1 per cent, though that's not a widely held view.

More popular is that the belief that Governor Stephen Poloz and his colleagues now will not hike rates until 2016.

Nothing on the rate front will actually happen today when the central bank releases its decision and accompanying monetary policy report.

Nor is the Bank of Canada expected to shift from its current "neutral stance," which means it will offer no new signal on the next move in rates, or when.

Rather, the focus will be on how "dovish" Mr. Poloz and his colleagues sound.

Expect a strong note of caution, given the plunge in crude prices and the projected impact of that on Canada's oil provinces, notably on the once-strong Alberta.

Until now, the Bank of Canada has projected economic growth of 2.4 per cent this year, but Mr. Poloz will almost certainly take the knife to that this morning.

"One can expect the central bank to chop slightly less than half a percentage point from its original growth forecast of 2.4 per cent for 2015," said Paul-André Pinsonnault and Krishen Rangasamy of National Bank.

"The bulk of the downgrade will likely be in investment spending. That will more than offset the boost to consumption (via lower pump prices) and exports (via a cheaper Canadian dollar) brought by the oil price drop."

Canadian oil patch companies have begun to cut spending.

National Bank, for one, projects the economy to expand by just 2 per cent this year, and inflation to ease to only 0.5 per cent, assuming West Texas Intermediate, the U.S. oil benchmark, averages $55 (U.S.) a barrel.

Other observers agree the cut to the central bank's outlook should put growth somewhere in the area of 2 per cent.

While some see an eventual rate cut as a rising possibility, most observers rule that out. For several reasons.

"Don't expect the bank to signal rate cuts are a strong possibility, even as the market is now pricing in some odds of a move," said deputy chief economist Michael Gregory of BMO Nesbitt Burns.

"After all, the steep drop in the Canadian dollar and plunging gasoline prices are already providing a stimulus package on their own, and rate cuts would merely exacerbate the bank's biggest domestic concern – record household debt levels."

Watch, too, for the outlook's impact on the Canadian dollar, which took a mighty tumble yesterday and, said chief currency strategist Camilla Sutton of Bank of Nova Scotia, could well test the 82-cent mark today.

The currency touched a low of 82.55 cents today, and a high of 82.88 cents.

"While the market is expecting a downgrade to the BoC's outlook, we think the magnitude of the changes and the dovish tone of the communiqué could surprise some investors," added Charles St-Arnaud of Nomura Securities.

"Investors may not yet be positioned for such a move," he added.

"Many investors still seem to think that the negative impact from the lower oil prices will be mitigated by a stronger U.S. economy, the benefit of lower oil prices for consumer and the effect of the weaker exchange rate on the manufacturing sector."

Inflation fades
The outlook for consumer prices is fast looking like a New England Patriots football.

Not only is the Bank of Canada expected to trim its projections for inflation, two other major central banks had warnings of their own today.

According to minutes of its last meeting, the Bank of England now believes inflation could fall below zero.

"CPI inflation had fallen to 0.5 per cent in December, 0.5 percentage points lower than had been expected in November, and was now expected by bank staff to reach a trough of close to zero in March, as lower oil prices fed through to petrol prices," according to the central bank minutes.

"There was, therefore, a roughly even chance that CPI inflation would temporarily dip below zero at some time during the first half of 2015. Inflation had also fallen abroad and was negative in the euro area."

The Bank of Japan, meanwhile, which is no stranger to deflation, also trimmed its inflation forecasts.

"With regard to the CPI, the outlook for the underlying trend remains unchanged, but the year-on-year rate of increase will likely be lower toward fiscal 2015, due to the significant decline in crude prices," it said.

Markets mixed
Global markets are mixed so far this morning as Europe's big day draws ever closer.

"It is just over 24 hours to go until we hear from ECB president Mario Draghi, and last-minute jitters are hampering the confidence of equity markets," said market analyst Alastair McCaig of IG, referring to what's expected to be the unveiling of a quantitative easing program from the European Central Bank tomorrow.

"With a number of indices having hit multi-year highs over the course of the week this may be a case of buy the rumour and sell the news."

Keep an eye on Netflix Inc., whose shares are surging.

Keep an eye, too, on Microsoft Corp. stock as the company is poised today to unveil more details of Windows 10, its next version.

"Windows 8 is widely viewed as a complete failure and that goes some way to explain a very fast turnaround of a new operating system that even appears to have skipped a numeral (9?)," said CMC's Mr. Lawler.

"Microsoft needs a better execution of what is probably the right idea of creating an operating system that can be used on both PCs and mobile; failure to do so could see further erosion of their dominant position in the PC market to Apple and Google, and shares could suffer as a result."

Fast stands firm
Canada's top trade official is holding the line on the country's 'Buy America' spat with the United States.

In Rome today, Trade Minister Ed Fast warned that the rebuilding of a B.C. ferry terminal is doomed unless Alaska backs down.
"We have made it very clear that the Buy America provisions will not be applied on Canadian soil, property owned by the federal government," Mr. Fast said.

As our European bureau chief Eric Reguly reports from Rome, Mr. Fast was referring to the ferry terminal that sits on Crown land in Prince Rupert, in northern B.C. near the Alaska panhandle.

Because the terminal is leased to the Alaska Marine Highway System until 2063, and the project is being funded by the U.S. and Alaskan governments, Alaska Governor Bill Walker is insisting that the Buy America rule applies to the steel used in the construction.

Canada is fighting that with special measures.

Toyota sees decline
Toyota Motor Corp. is projecting a drop in production and sales this year.

According to its forecasts for 2015 released today, the Japanese auto maker expects global production to be cut by 1 percent, to about 10.2 million vehicles.

The cut will come in Japan, to the tune of a 6-per-cent decline, while production in other countries rises 3 per cent.

Toyota also forecasts a 1-per-cent decline in sales, but again, that's because of Japan, where they're expected to fall by 9 per cent to 2.1 million.

Outside of Japan, sales are projected to rise 2 per cent, for global sales just shy of 10.2 million.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 4:00pm EDT.

SymbolName% changeLast
AAPL-Q
Apple Inc
-1.06%171.48
BNS-N
Bank of Nova Scotia
+1.21%51.78
BNS-T
Bank of Nova Scotia
+0.94%70.07
CADUSD-FX
Canadian Dollar/U.S. Dollar
-0.08%0.73792
GOOG-Q
Alphabet Cl C
+0.21%152.26
MSFT-Q
Microsoft Corp
-0.17%420.72
NFLX-Q
Netflix Inc
-1.01%607.33
TM-N
Toyota Motor Corp Ltd Ord ADR
-0.19%251.68

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