Bank of Canada holds rates, watching 'significant uncertainties'

Wed Mar 1, 2017 11:57am EST
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By Leah Schnurr and David Ljunggren

OTTAWA (Reuters) - The Bank of Canada acknowledged on Wednesday that fourth-quarter growth might have been stronger than anticipated, but it left interest rates unchanged at 0.50 percent as it focused on the "significant uncertainties" facing the economy.

In an unusually short policy statement, the central bank maintained its cautious stance. It downplayed the fourth-quarter strength by pointing to the large amount of unused capacity in the economy and saying it was looking past the recent rise in inflation as being due to temporary factors.

Economists said the statement kept the bank's dovish stance intact after Governor Stephen Poloz said in January that a rate cut remained on the table if the risks to the economy materialize.

"Effectively they're saying not much has changed since January," said BMO Capital Markets chief economist Doug Porter.

"We have had a wave of stronger-than-expected Canadian data, yet the bank is fairly steadfast in playing down some of the positives and highlighting some of the negatives."

The Canadian dollar hit a five-week low following the statement. The bank cut rates twice in 2015 during a collapse in oil prices, and the statement reinforced analysts' expectations that it will stay on the sidelines until next year. [CA/POLL][CAD/]

The bank said it was still monitoring the risks outlined in its January Monetary Policy Report, which included lack of clarity over what policies U.S. President Donald Trump will enact.

While Trump has said the United States will be "tweaking" its relationship with Canada, the effects of his promised changes to trade and taxes are not clear, and his speech on Tuesday offered no new details. Canada sends 75 percent of its exports south of the border.   Continued...

A man is reflected in a window while walking past the Bank of Canada office in Ottawa, Ontario, Canada, May 25, 2016. REUTERS/Chris Wattie