Bank of Canada rate outlook should be public-report

* Paper calls for Bank of Canada to publish rate forecast

* Move would provide clarity for markets

OTTAWA, July 14 (BestGrowthStock) – The Bank of Canada should
publish its forecast of future interest rates to shed more
light on how it responds to economic developments and help
financial markets make better decisions, experts said on
Wednesday.

Economics professors Angelo Melino and Michael Parkin argue
that the six-member governing council that sets interest rates
has a vision of where the bank’s key overnight rate is headed
that differs from the one produced on a quarterly basis by the
bank’s own economic model.

The inconsistency may be explained by the emergence of new
economic data, or a crisis erupting abroad. By publishing the
bank’s forecast for the path of interest rates, market players
would better understand how central bankers react to those
developments, University of Toronto professor Melino and
University of Western Ontario professor Parkin said in a paper
for the C.D. Howe Institute, a think tank.

“More accurate forecasts of the bank’s future policy
choices lead to better financial decisions, better price and
wage-setting decisions, and the attainment of low and stable
inflation with minimum disturbance to the real economy,” Melino
and Parkin wrote.

The central bank’s next rate decision will be made public
on July 20, and Canada’s primary securities dealers unanimously
predict a second consecutive rate hike to 0.75 percent from 0.5
percent.

But how quickly the benchmark lending rate rises after
that is more of a mystery, with more than half of the
participants in a Reuters poll forecasting a pause in the
tightening cycle at some point this year.

Bank of Canada Governor Mark Carney has warned markets
repeatedly that there is no “preordained” path for interest
rates, pointing to big risks in the global economy such as the
euro zone sovereign debt crisis and signs the U.S. recovery is
faltering.

The bank will update its economic forecasts in a quarterly
report on July 22. During the crisis the bank explicitly told
markets it would keep interest rates at record low levels for a
specific period, but otherwise it rarely provides such
guidance.

“We encourage the bank to publish its own conditional
forecast of the future path of the overnight rate,” Melino and
Parkin wrote.

“If that is going too far, we suggest the bank consider
publishing its own conditional forecasts with a six-month lag
to enable market participants to learn what these forecasts
mean and how to use them.”

Officials at the Bank of Canada were not immediately
available for comment.
(Reporting by Louise Egan; editing by Peter Galloway)

Bank of Canada rate outlook should be public-report