UPDATE 3-Bank of Canada softens stance, rate hike still on horizon

Wed Mar 6, 2013 12:05pm EST
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* Central bank holds rate at 1.0 percent as expected

* Says rate hikes still likely but after "a period of time"

* Inflation weaker than expected; continued slack in economy

By Louise Egan and Randall Palmer

OTTAWA, March 6 (Reuters) - The Bank of Canada softened its stance on the need for interest rate hikes on Wednesday, saying it will likely hold its benchmark rate steady for "a period of time," but that its next move would still probably be a hike rather than a cut.

The central bank held its overnight lending target unchanged at 1.0 percent, where it has been since September 2010. It had been signaling for several months that it intends to raise the rate, but in January said such a move was "less imminent" and on Wednesday it took another step back.

"With continued slack in the Canadian economy, the muted outlook for inflation, and the more constructive evolution of imbalances in the household sector, the considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required, consistent with achieving the 2 percent inflation target," the bank said.

Its previous guidance did not include a reference to "continued slack" or to the "period of time" over which rates would likely stay on hold.   Continued...