September 5, 2018 / 2:09 PM / 10 months ago

UPDATE 1-Bank of Canada keeps rates on hold, says more hikes warranted

(Adds details of statement, background)

By David Ljunggren

OTTAWA, Sept 5 (Reuters) - The Bank of Canada held interest rates steady on Wednesday as expected and reiterated that while more hikes would be needed to keep inflation on target, it would take a gradual approach.

The overnight interest rate remains at 1.50 percent. The central bank - which maintains a 2 percent target for inflation - has raised rates four times since July 2017 in response to a recovering economy.

“Recent data reinforce Governing Council’s assessment that higher interest rates will be warranted to achieve the inflation target. We will continue to take a gradual approach, guided by incoming data,” the bank said in a statement, using language that was little changed from the last announcement on July 11.

A Reuters poll of economists published last Friday had predicted the bank was likely to leave interest rates unchanged. The bank’s next fixed date for unveiling its rate decision is Oct. 24.

Although Canada’s annual inflation rate surged to 3.0 percent in July, its highest level in nearly seven years, the bank said it expected the rate would move back towards 2 percent in early 2019 as the effects of past increases in gasoline prices dissipated.

“The Bank’s core measures of inflation remain firmly around 2 percent, consistent with an economy that has been operating near capacity for some time,” it said.

Data released last week showed gross domestic product grew at an annualized rate of 2.9 percent in the second quarter, ahead of the bank’s estimate of 2.8 percent.

The bank said it expected GDP to slow temporarily in the third quarter, thanks largely to further fluctuations in energy production and exports.

Elevated trade tensions remained a key risk to the global outlook, it added.

Canadian and U.S. officials are due to meet on Wednesday in a bid to settle disagreements holding up the renegotiation of the North American Free Trade Agreement. (Reporting by David Ljunggren Editing by Susan Thomas)

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