UPDATE 2-Bank of Canada seen on hold for now after rate decision

Wed Sep 9, 2015 11:22am EDT
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(Adds reaction, economist comment on rates staying on hold for now)

By Randall Palmer and Leah Schnurr

OTTAWA, Sept 9 (Reuters) - The Bank of Canada kept its key interest rate at 0.5 percent on Wednesday, declaring its previous two rate cuts were still stimulating an economy that is benefiting from solid household spending and a firm U.S. recovery.

It added some important caveats about uncertainty abroad and continued troubles in the resource sector, but the market quickly interpreted the statement as meaning the central bank was less likely to cut interest rates in the future.

"It seems they're quite comfortable with a balanced assessment of risk, so I think this leaves the Bank of Canada on the sidelines for quite some time," Toronto-Dominion Bank chief Canada macro strategist David Tulk said.

The bank had cut rates in January and in July because of the sharp oil price drop, which was causing serious reductions in business investment, especially in the oil patch.

It said on Wednesday that the resource sector continued "to adjust to lower prices for oil and other commodities, with some spillover to the rest of the economy" - adjustments it said were complex and would take considerable time.

And it said increasing uncertainty about growth prospects in China and other emerging markets was raising questions about the pace of global recovery.

However, weakness in the Canadian dollar is helping absorb some of the impact of lower commodity prices and facilitating economic adjustments, it noted, with exchange rate-sensitive exports regaining momentum.   Continued...