2018.05.2821:22:00UTC+00BoC Governor Seen to Hold Rates at 1.25%

Governor Stephen Poloz heads into a rate decision on Wednesday where he's expected to once again refrain from raising borrowing costs, even as the economy shows signs of strength and is running up against capacity constraints.

After the current pause, which came after three rate increases, most economists are expecting the Bank of Canada to return to a hiking path in July, followed by one more increase at the end of the year.

As of late Friday, 21 of 24 economists predict Poloz will hold rates steady, with the rest calling for a quarter-point hike. Investors agree chances of an increase are slim; implied odds of a May 30 rate hike dropped to 25 percent last week, from 35 percent about a month ago. An increase by July and another one by December are almost fully priced in.

The Bank of Canada's announcement will be a shorter one-page statement -- as opposed to the one in July, which will be accompanied by new quarterly forecasts and a press conference -- and any new language on trade tensions, the housing market and economic slack will be important clues for assessing a July increase.

After a recent soft patch, consensus forecasts show the expansion will accelerate to an annualized pace of at least 2 percent and that should eat further into Canada's dwindling spare capacity.

Unemployment in Canada is at record lows and executives are telling Poloz they remain largely unscathed from policy uncertainty emanating from the Trump administration.

After five of years of below-target inflation, rising demand has consumer prices poised to meet or beat the bank's 2 percent goal through the next year.