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Bank of Canada keeps interest rate unchanged, likely to hike again in spring

The Canadian central bank, Bank of Canada, kept its key monetary policy interest rate on hold at 1.75 percent today. The central bank’s statement released along with the decision had a slight dovish tone. Developments in the energy sector and global trade tensions are a drag on the outlook. The Canadian economy has “been performing well overall", however, the central bank is also worried about the below expected consumer spending and housing investment. The statement concluded that “the policy interest rate will need to rise over time into a neutral range to achieve the inflation target”.
 

Moreover, the central bank also released the newest Monetary Policy Report. The 2018 growth expectations were kept the same at 2.1 percent; however, the projections for 2019 were downwardly revised to 1.7 percent. The downward revision was because of changes in their forecasts for consumer spending and business investment. On the contrary, the projection for 2020 was upwardly revised to 2.1 percent, reflecting a rebound from current softness.

“In line with our analysis, the Bank of Canada sees near-term weakness, tracking 2018Q4 and 2019Q1 real GDP growth at just 1.3 percent and 0.8 percent respectively (q/q saar). However, like us, the Bank of Canada expects a pop-back to above trend growth as 2019 progresses”, said TD Economics in a research report.

Meanwhile, inflation is likely to remain tame. Headline inflation is expected to remain below target in the near term before returning to 2 percent by the end of this year, with a similar rate likely in 2020.

“The Bank's economic outlook now looks a fair bit like ours. This means that as near-term shocks fade, the Canadian economy should get back on track, with some modest inflationary pressures to match. For this reason we continue to pencil in another rate hike this spring. This is of course contingent on the economy evolving as expected”, added TD Economics.

At 17:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was highly bullish at 156.66, while the FxWirePro's Hourly Strength Index of US Dollar was highly bearish at -126.391. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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