INTEREST RATES: Bank of Canada chief to make 'pivotal' speech this week

Those seeking more clarity from Bank of Canada governor Mark Carney on when interest rates are going to rise just might get some on Wednesday.

There is a lack of major economic reports for Canada due in the next five business days. However, much attention will be paid to Carney when he speaks at a conference in Ottawa being put on by the Canadian Association for Business Economics.

Last April, the Bank of Canada lowered its overnight target interest rate to a record-low 0.25 per cent and said it would more than likely keep it there until at least July this year.

At the time, it forecast Canada's core inflation rate would fall short of the preferred two-per-cent annual rate until the latter part of 2011. That hasn't exactly worked out as planned.

The latest report from Statistics Canada put core inflation -- which strips out volatile items like energy and certain foods -- at 2.1 per cent. That was up from a two-per-cent annualized rate in January, and ahead of economists' expectations for 1.7 per cent in February.

"I think that is shaping up to be a pivotal [speech]," Millan Mulraine, economics strategist with TD Securities, said about Carney's upcoming engagement. "Markets will certainly pay a lot of attention to that. If there is any inclination on his part to provide any hints to the markets, this would be an ideal opportunity for him."

Avery Shenfeld, chief economist with CIBC World Markets, said Carney is likely to be subtle in any commentary about interest rates in Wednesday's speech, sticking close to what's already been said.

"The market has priced in rate hikes beginning in the summer, and I don't expect Carney to say anything to disabuse them of that notion. I think the Bank of Canada is likely comfortable with the market assuming that he'll be raising interest rates this summer."

Mulraine said the most likely scenario is for Carney to somehow get across that he will not waste any time before boosting interest rates once July rolls around. He said it's not inconceivable that Carney would hint at making a move before that, but this is unlikely for a few reasons. For one, February's inflation figure was skewed by higher travel-accommodation prices related to the Winter Olympics, minimizing cause for alarm. Also, Mulraine said the central bank would probably want to see a few more months of inflation data to assess the overall trend, and it would be almost July by that time anyway.

The Canadian dollar's march toward parity is another thing worth watching in the coming week. It came within a cent of the U.S. dollar on Friday, then pulled back.

(prepared by Derek Abma/Financial Post/Vancouver Sun)