The Bank of Canada's expected rise is six months for Poloz

OTTAWA-Stephen Poloz can no longer resist the rise in interest rates.

Economists predict the Bank of Canada's governor will resume tightening policy on Wednesday, which would be the first increase in borrowing costs since January. Further increases will follow as companies warn of wage pressures and inflation remains above the central bank target.

Poloz, however, is still unlikely to be in a hurry. There remains a long list of reasons for caution, beginning with the real possibility that Canada will enter into a trade war with its largest trading partner. And if the recent past is an indication, the Bank of Canada's trend will be to be cautious and wait for the data to get stronger – a framework that most badysts plan to raise every six months or so. The message is that the Bank of Canada sees the need for higher rates, but has also made it clear that it needs to get enough economic data to confirm that the economy can live with it, "said Avery Shenfeld, Chief Economist at CIBC World Markets Inc. telephone interview. "There is no predefined schedule at higher rates and their speed will depend on the quality of the economy."

The hyper-dependence of the data largely reflects Poloz's emphasis on policy uncertainty – everything from geopolitical tensions to questions about the reliability of economic forecasts. This means, in Poloz's language, not to follow the models mechanically, using a "risk management" approach for decision-making and giving high value to the incoming economic data.

And now the data accumulated since the last rise in January

Inflation has slowly exceeded the 2% target of the central bank and is heading upwards. The unemployment rate is near the lowest in four decades, and executives are more likely to complain about labor shortages than a lack of business. Salaries have accelerated. Exports and investments – the big disappointments of the last decade – finally look healthy, reducing the economy 's dependence on consumers and making expansion more resilient.

Of 18 economists polled by Bloomberg, 14 expect the Bank of Canada's benchmark rate to be a quarter point this week at 1.5 percent. The market price is online, with investors placing a rating of over 80% on a rise to Wednesday's decision, which includes a new economic forecast and a press conference.

After that, we expect a little crawl. The chances of another rise from here until the end of the year are only 50-50 and no more than three total hikes – including this week – are billed over the course of 12 next few months, bringing the rates to 2%. The chances of a rise are slim.

If the market is good, the rates will remain well below what is considered normal – the Bank of Canada estimates its neutral rate at least 2.5%. In other words, gradualism will persist.

The normalization of policies is a delicate task. Interest rates are still very low and the Canadian dollar has weakened, offering extremely accommodative financial conditions. In real terms – adjusted for inflation – the official benchmark rate is among the lowest in the world, according to estimates by Derek Holt, head of the financial markets at Scotiabank.

for exported oil.

The big risk is that too much hesitation will fuel wage and inflation pressures and provoke even more aggressive rate hikes. After all, the mandate of the Bank of Canada is to target inflation in a range of 1 to 3%

And with inflation that could flirt with 3% over the next few months – an acceleration from the central bank "One can not rule out the risk that inflation will exceed the end of the target range by the end of the year," Holt said in a note to investors the last week. "Now combine that with wage pressures that exceed inflation and the message is that wage and price dynamics seriously risk putting the BoC behind its inflation mandate."