PREVIEW-Bank of Canada seen holding rates on Sept. 7

FORECASTS: A Reuters survey of Canada's 12 primarysecurities dealers Rosetta Stone V3 [ID:nN1E77I1EV] and a separate Reuters pollof 43 forecasters [CA/POLL] unanimously predict the Bank ofCanada will keep its overnight target rate at 1 percent onWednesday. The major issue is what sort of language the bank will useto describe the future path of interest rates and the state ofthe economy. Its rate statement is almost certain to be moredovish than its last one on July 19. FACTORS TO WATCH: Phrasing on withdrawal of monetary stimulus: On July 19, the bank dropped the term "eventually" insaying it would withdraw monetary stimulus if economicexpansion continued. Here is its precise language: "To theextent that the expansion continues and the current materialexcess supply in the economy is gradually absorbed, some of theconsiderable monetary policy stimulus currently in place willbe withdrawn, consistent with achieving the 2 percent inflationtarget."[ID:nN1E76I045] On Aug. 19, Governor Mark Carney modified that stance,saying the bank would be prudent: "We have emphasized that wewould be prudent with respect to the possible Rosetta Stone language software withdrawal of anydegree of monetary stimulus." Any indication of an interest rate cut: This is unlikely, with most economists forecasting the nextmove will be up. The median forecast of economists surveyed isthat the bank will raise the rate in the second quarter of2012. However, yields on overnight index swaps, which tradebased on expectations for the key rate, showed investors stillexpect it to fall late this year or sometime in 2012. Also, atleast one analyst does not rule out a commitment by the bank tohold rates steady for a specific period of time. BOCWATCH Growth prospects: After the 0.4 percent annualized fall in real GDP in thesecond quarter [ID:nN1E77U0QM], the bank may update its generaloutlook for the rest of the year, although it will not provideactual forecasts. The bank's July 20 Monetary Policy Report,now seen as somewhat dated, forecast growth of 2.8 percent inthe third quarter, 2.9 percent in the fourth quarter, and 2.6percent in 2012. Inflation: The bank's July expectation was for inflation to return toits Rosetta Stone French 2 percent target by mid-2012, and for core inflation to hit2 percent by the fourth quarter of this year. In July, overallinflation fell to 2.7 percent from 3.1 percent, and core roseto 1.6 percent from 1.3 percent. [ID:nN1E77I02W] Anyacceleration of the rise in core inflation could raiseexpectations of a rate hike.

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