Bank of Canada holds rates, signals no hike soon

Tue Mar 1, 2011 12:16pm EST
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By Randall Palmer and Louise Egan

OTTAWA (Reuters) - The Bank of Canada left its key interest rate unchanged at 1 percent on Tuesday and gave no signal it plans to raise rates soon, spurring traders to scale back rate-hike bets and to knock the Canadian dollar off a three-year high.

The central bank repeated the exact language on rates that it used in its January rate announcement, saying that while considerable monetary stimulus remains in place "any further reduction in monetary policy stimulus would need to be carefully considered".

It said the Canadian recovery was moving a bit faster than it expected and hailed a budding recovery in net exports. But it cautioned that the export sector "continues to face considerable challenges from the cumulative effects of the persistent strength in the Canadian dollar and Canada's poor relative productivity performance".

Investors hoping for a hint that recent strong economic data would prompt the bank to resume rate hikes at its next decision date on April 12 were disappointed. The Canadian dollar weakened against the U.S. currency following the stay-the-course statement.

"On balance, it suggests no imminent rate move," said Paul Ferley, assistant chief economist at Royal Bank of Canada.

It also raised more doubts about whether the bank would move on rates at either its April 12 or May 31 policy-announcement dates.

Most analysts polled by Reuters last week predicted the bank would resume rate hikes in the first half of the year, with May 31 being the most likely date for the next move.

Markets "perhaps got ahead of themselves in their expectations for first-half rate hikes," said Jacqui Douglas of TD Securities.   Continued...

<p>Bank of Canada Governor Mark Carney listens to a question during a news conference upon the release of the Monetary Policy Report in Ottawa January 19, 2011 REUTERS/Chris Wattie</p>