Bank of Canada signals more rate cuts may be unneeded

Wed Apr 15, 2015 2:48pm EDT
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By Randall Palmer and Leah Schnurr

OTTAWA (Reuters) - Bank of Canada Governor Stephen Poloz held interest rates steady on Wednesday and suggested that no further cuts are imminent due to the bank's expectation that the economy will rebound later this year from the first quarter's zero growth.

Poloz stunned markets in January with a surprise 25-basis-point cut to provide what he called "insurance" against a downturn in Canada's oil-heavy economy stemming from the oil-price crash. He indicated on Wednesday that could be enough.

"Given what we know today, we have a balanced risk forecast, and therefore the inflation outlook has got risks on both sides, but we believe that they are balanced and so we have the right amount of insurance," he told a news conference.

The bank slashed its estimate for first quarter growth to zero from the annualized 1.5 percent it forecast in January, but it said the second quarter and especially the third should be much stronger.

Poloz repeated his view that the oil shock's impact is likely to have been most severe in the first part of the year.

He said the key risk to that view is that the shock is more acute than he expects and the economy does not return to full capacity until 2017, which "would be a case for considering changing monetary policy".

The more bullish than expected central bank stance helped boost the Canadian dollar to its strongest level since mid-February. Traders also reduced their bets on a rate cut.

Canada is a major oil exporter and the oil-price plunge that started last year has hit oil-field drilling and employment hard.   Continued...

Bank of Canada Governor Stephen Poloz speaks during a news conference upon the release of the Monetary Policy Report in Ottawa April 15, 2015. REUTERS/Chris Wattie