Bank of Canada maintains interest rate at 0.50 pct, upgrades GDP forecast for 2016

The Bank of Canada in its first monetary policy of 2016 maintained its benchmark interest rate at 0.50 percent, as widely expected. Also, the central bank upgraded its economic growth forecast for 2016, 2017 and 2018.

The BoC in its monetary policy statement mentioned that the uncertainty about the global outlook is undiminished, particularly with respect to policies in the United States. The Bank has made initial assumptions about prospective tax policies only, resulting in a modest upward revision to its U.S. growth outlook.

It also added that the global economy is strengthening largely as expected and prices of some commodities, including oil, have risen. The rapid back-up in global bond yields, partly reflecting market anticipation of US fiscal expansion, has pulled up Canadian yields relative to the October Monetary Policy Report (MPR).

According to the Bank of Canada's latest projections, Canadian GDP is now estimated to have expanded by 1.3 percent in 2016 (previously: 1.1 percent), and is expected to accelerate to 2.1 percent this year (was 2.0 percent). The Bank's projection of 2.1 percent growth in 2018 was left unchanged, reported TD Economics in its research note.

Moreover, the Bank of Canada Governor Stephen Poloz said that the prospects of a BoC rate cut remains on the table should downside risks to current forecasts materialise. However, Poloz also added that the BoC was more confident than before on current forecasts, highlighting a fair amount of agreement with the incoming Trump administration on tax stimulus.