Bank of Canada keeps interest rate unchanged

Bank of Canada keeps interest rate unchanged

"The macro outlook, while it does suggest a deceleration in economic growth, it is not a dynamic that threatens the Bank of Canada trajectory", said Mazen Issa, senior FX strategist at TD Securities.

"As the snow melts, we'll have a clearer view that the economy is back on track and then likely to grow above or around two per cent after that", Poloz told reporters after announcing the bank would keep its benchmark interest rate at 1.75 per cent.

The talk of further hikes helped boost the Canadian dollar, which extended earlier gains, touching C$1.3180 to the USA greenback, or 75.87 US cents.

The bank's benchmark rate directly affects the interest rates that Canadian consumers get from their retail banks on their mortgages, loans or on their savings deposits.

Before long, however, the central bank expects the economy to expand with renewed vigour and it stresses more rate hikes will be necessary over time.

Meanwhile Canadian calendar will see release of Bank of Canada's monetary policy report and interest rate decision which is expected to remain unchanged.

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The bank also said that persistent weakness in oil-producing regions after the 2014-2016 slump has been a major factor in the slow wage growth for the country as a whole, even before this latest downturn in oil prices. "In particular, growth in the United States remains solid but is expected to slow to a more sustainable pace through 2019". -Chinese trade war was hitting global demand and commodity prices but adopted a positive long-term outlook.

Investment in the Canadian oil and gas sector would decline by about 12 percent in 2019, compared with the 1.5 percent drop it predicted in October, it said. These worries among market participants have also been reflected in bond and equity markets.

While U.S. stock markets rose recently amid some optimism over trade talks between Washington and Beijing, 2018 ended with the Dow Jones Industrial Average down 5.6 per cent, the steepest decline since the financial crisis, according to the Wall Street Journal.

This year, oil demand growth is expected to stay robust, but expected slowdown in emerging market and developing economies (EMDEs) "could have a greater impact on oil demand than expected", the World Bank said.

These developments are occurring in the context of a Canadian economy that has been performing well overall. Growth has been running close to potential, employment growth has been strong, and unemployment is at a 40-year low.

Looking ahead, the bank said exports and non-energy investment were expected to grow solidly, moved forward by foreign demand, a new North American free trade pact, a weaker Canadian dollar and federal tax measures aimed at investment. But for the people in (mainly) Alberta who will feel the impact directly, it's notable that the Bank of Canada's key interest rate, at 1.75 per cent, is more than a full percentage point higher than it was in mid-2015.

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