BCN-25Canada central bank holds key lending rate at 1.25%

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ZCZC

BCN-25

CANADA-BANK-RATE

Canada central bank holds key lending rate at 1.25%

OTTAWA, May 31, 2018 (BSS/AFP) – Canada’s central bank on Wednesday
maintained its key lending rate at 1.25 percent, saying the economy was
chugging along but exporters face continued uncertainty over trade policies.

The Bank of Canada said that while the economy’s strengthening this year
warrants a hike in rates, it nonetheless would take a cautious or “gradual
approach to policy adjustments.”

“In particular, the bank will continue to assess the economy’s sensitivity
to interest rate movements and the evolution of economic capacity,” it said
in a statement.

The Bank of Canada last raised rates by 0.25 percent in January. Its next
rate announcement is scheduled for July 11.

The bank noted that activity in the first quarter appeared to have been “a
little stronger than projected” and exports were “more robust than forecast.”

The Canadian economy, it said, is now “operating close to potential” and
inflation is close to the bank’s 2.0 percent target.

There was continued weakness in housing as the market adjusts to stricter
mortgage rules, but data on imports of machinery and equipment suggested a
“continued recovery in investment,” it said.

The bank also noted “some upside” to the economic outlook for the United
States — Canada’s neighbor and largest trading partner.

However, the bank said “ongoing uncertainty about trade policies” is
dampening global investment, and “stresses” in some emerging market economies
could create ripples that are likely to impact Canada.

Canada last year signed a free trade deal with Europe and more recently
joined Pacific and South American trade blocs.

But the fate of the North American Free Trade Agreement (NAFTA) remains
uncertain as difficult negotiations with Washington and Mexico appeared to
have bogged down after nine months of talks.

BSS/AFP/HR/1138