Published: Thu, April 13, 2017
Economy | By Melissa Porter

Bank holds rate, sees better growth and risks

"The Bank's Governing Council acknowledges the strength of recent data, some of which is temporary, and is mindful of the significant uncertainties weighing on the outlook", the bank said in a statement.

In January, he said the unknowns surrounding the US trade agenda, along with what was then the sluggish state of the Canadian economy, had left the door open to a possible rate cut.

Reiterating its position that material excess capacity remains in the economy, the central bank nudged up its growth forecast for 2017 but lowered its projection for potential growth to reflect "persistently weak investment".

The bank previously held rates at its March meeting, as well.

It also said the economy has yet to show it can stick to the higher growth trajectory.

"They are still sitting on the fence but feeling that the numbers are coming in a little bit better", said Hosen Marjaee, senior managing director, Canadian fixed income at Manulife Asset Management. "I think markets are probably going to be a little bit skeptical".

Overall, the bank wants to see more favourable data to be more confident that growth is on a solid footing, especially given the high degree of uncertainty.

On the negative side, the central bank, which published its quarterly forecasts, highlighted weakness in the labor market, inflation, exports and business investment. The bank also expects the powerful pace of household spending - particularly in residential investment - to eventually slow next year as debt levels and borrowing costs rise.

The Bank of Canada's governor says there is increasing evidence of speculation in Toronto's hot housing market, where the average price of a detached house has surpassed the $1.5-million mark.

Canadian dollar ends at C$1.3273, or 75.34 U.S. cents * Loonie touches its strongest since February 28 at C$1.3238 * Bond prices higher across a flatter yield curve (Adds portfolio manager quotes and details on Trump's comments and updates prices) By Fergal Smith TORONTO, April 12 (Reuters) - The Canadian dollar strengthened on Wednesday to a six-week high against its U.S. counterpart after the Bank of Canada turned less dovish, while comments by U.S. President Donald Trump weighed on the greenback.

The future, however, looks murky. Housing will contribute 0.3 percentage point to 2017 GDP growth, the bank said, reversing its January prediction the sector would detract 0.1 percentage point from growth.

In its quarterly monetary policy report, which was also released Wednesday, the bank said its outlook once again factored in some of the effects caused by ongoing unknowns around the potential introduction of US changes, especially in relation to trade and fiscal policies. The central bank had flirted with the idea in January when there was high uncertainty and concern surrounding the USA trade agenda and Canada's economy. Economists suggested that the bank is still waiting to see what US President Donald Trump, who during his campaign espoused a protectionist agenda and articulated his intention to "renegotiate" the North American Free Trade Agreement, or NAFTA, will do.

The bank said Canadian firms "remain wary" over potential US -related developments that could increase protectionism and reduce competitiveness in the event of corporate tax reductions and regulatory changes.

The bank also pointed to the US trade-policy unknowns, and the fact it now expects them to drag on longer than expected, in its decision to revise down its prediction for business investment this year.

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