A hotly debated rate decision will take centre stage in Canada thies week, although earnings season will grab much of the market’s attention, too.

The Bank of Canada’s decision on interest rates scheduled for Tuesday will be the early focus this week, particularly because economists are not entirely convinced of the outcome.

It is widely expected that Friday’s strong jobs report relieves the pressure to cut rates, but doesn’t eliminate it entirely. The market appears to be calling for no move, with a slight chance of a 25 basis point cut.

“Expectations are that the Bank of Canada will stand pat on overnight rates for now, and that consensus view seems on the mark,” says CIBC World Markets. “The accompanying statement and subsequent policy report will likely closely mirror the last set of remarks from the Bank, admitting to little growth in Q2, a lingering sluggish pace in Q3, but hopeful for an acceleration thereafter.”

BMO Nesbitt Burns says that the main arguments in favour of a move are: the higher jobless rate, weak GDP readings, low consumer inflation, and that the Fed, the Bank of England and the European Central Bank have all cut rates recently.

The reasons to stand pat are: the slowdown is mainly due to temporary factors (i.e. SARS, mad cow), the U.S. economy is poised for an acceleration, a softening of the Canadian dollar, Australia recently decided to keep rates stable, inflation is still robust, and financial markets are picking up. “We lean in favour of no change in rates at this time,” Nesbitt concludes. “However, if growth continues to stumble in North America over the summer, a rate cut in September is a high probability.”

TD Bank predicts that the Bank will leave rates unchanged, although it will be a close call. “However, the other key issue is not only what the Bank will do, but it is what it should do. And, on that front, the conclusion is more clear cut — we believe that there is a rather compelling case for the Bank of Canada to nudge rates lower. The Canadian economy may not be heading off a cliff, but given the headwinds that it is facing, the Bank of Canada should seize the opportunity to take out some additional insurance — especially since it can now afford to do so.”

Nesbitt says, either way, the Bank of Canada will spell out its decision in clearer terms in the Monetary Policy Report Update on Thursday.

As for other Canadian economic data, auto sales are reported on Monday, manufacturing shipments are due on Wednesday, international securities transaction data is out on Thursday, and Friday brings wholesale sales data.

“Headline shipments and orders likely fell again in May after a sizeable decline in the prior month,” Nesbitt predicts. “Shipments will be nearly 3% below year-ago levels, reflecting the intense pressure on manufacturing from the loonie’s flight.”

In the U.S. this week, the focus may be on corporate earnings, but there is a heavy data slate, too. Fed chairman Alan Greenspan’s monetary policy report on Tuesday will be closely watched.

“If bonds are going to recover some of their lost ground, they need the chairman to continue to emphasize downside risks to inflation and the need for low borrowing costs,” says CIBC. “Even better would be a subtle threat to either cut overnight rates one final time, or directly buy more Treasuries at the long end to flatten the curve.”

RBC Financial says that markets are also waiting for June retail sales on Tuesday, June CPI and industrial production and Wednesday, and June housing starts on Thursday. “Next week also sees the release of several key leading indicators that will be closely scrutinized: initial unemployment claims and the July Philly Fed index on Thursday and advance consumer sentiment for the first half of July on Friday. On balance we expect these indicators to reflect sluggish current growth but better signs for the third and fourth quarters,” RBC says.

CIBC comments, “Retail sales and industrial production for June weren’t much to crow about, while CPI looks to be tame once again.”

Nesbitt says that core CPI “will clearly be closely watched after core PPI fell for the month. However, our attention will be on the first indicators for second-half growth, including the Homebuilders’ July survey, NY State and Philadelphia-area activity surveys conducted by the Fed, and the University of Michigan’s confidence survey. It’s time for the economy to pick up and it will not hurt our feelings a bit if most of the July data take a turn for the better.”