Canada central bank says interest rate cuts still on the table

Wed Jan 18, 2017 1:13pm EST
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By Andrea Hopkins and Leah Schnurr

OTTAWA (Reuters) - An interest rate cut remains on the table if the risks facing the country are realized, the Bank of Canada said on Wednesday, warning there would be "material consequences" if U.S. President-elect Donald Trump enacts protectionist policies.

Nonetheless, the central bank held rates steady, even as it nudged economic growth forecasts higher, saying the big unknown of Trump's trade policies makes it prudent to wait and see.

In its first major report since the U.S. election, the bank highlighted potential positives and negatives for the Canadian economy from changes Trump may bring, saying infrastructure spending could boost growth but tax cuts could hurt competitiveness.

Though it did not quantify the potential impact, the bank said "prospective protectionist trade measures in the United States would have material consequences for Canadian investment and exports."

Bank of Canada Governor Stephen Poloz emphasized that assessing the effects of such risks, such as Trump's promise to renegotiate the North American Free Trade Agreement, is not cut and dry, though the bank was ready to act.

"Should any of those downside risks materialize and put our inflation target at risk, then we would have the room to maneuver," Poloz told reporters.

"A rate cut remains on the table and it would remain on the table for as long as downside risks are still present."

The Canadian dollar fell to a session low against the greenback after Poloz's comments, trading at C$1.3221 or 75.64 U.S. cents. [CAD/]   Continued...

Bank of Canada Governor Stephen Poloz arrives at a news conference upon the release of the Financial System Review in Ottawa, Ontario, Canada, December 15, 2016. REUTERS/Chris Wattie