UPDATE 1-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
(Adds quotes, details)

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

Economics professors Angelo Melino and Michael Parkin
argued 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 such factors as the
policymakers’ reaction to the emergence of new economic data,
or the eruption of a crisis abroad.

Publication of the bank’s forecast for the path of interest
rates would help market players better understand how central
bankers react to such 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.

“What we need to know is how the bank is going to respond
to different kinds of shocks and you can infer that from their
behavior over time. With the interest rate forecast it would be
easier to do that,” Melino told Reuters.

Right now, for example, the central bank says the economy
will return to full capacity by the middle of next year, yet
interest rates are expected to be much lower than they would
normally be for this stage in the economic cycle.

Markets can only speculate as to why the governing council
thinks it can achieve a balanced economy and low inflation with
rates that are considered stimulative. It could be that the
council wants to avoid too big a spread between Canadian and
U.S. rates, or that it expects consumer or business spending to
plunge, allowing it to keep rates low.

The Bank of Canada declined to comment on the report,
citing a self-imposed media blackout before its July 20 rate
decision.

Canada’s primary securities dealers unanimously predict the
Bank of Canada will raise its key rate next week to 0.75
percent from 0.5 percent after raising it by a quarter point in
June.

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 made a
conditional commitment to keep interest rates at record low
levels for a specific period, but it has rarely provided
forecasts on rates.

“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.”
(Reporting by Louise Egan; editing by Peter Galloway)

UPDATE 1-Bank of Canada rate outlook should be public-report