MNI 5 THINGS: BOC Key Rate Unch at 1.25%, 'Gradual Approach'>

By Courtney Tower

     OTTAWA (MNI) - Following are the key points made by the Bank of 

Canada in its interest rate announcement Wednesday, maintaining the 

policy interest rate at 1.25%, as expected: 

     -- The Bank says developments since April "further reinforce" view 

that rate hikes will be warranted but no longer says they will be 

warranted "over time." BOC also drops "some monetary policy 

accommodation will still be needed." Rate hikes would be needed to keep 

inflation "near target" rather than "on target" as in the previous 

statement April 18. The Bank will take "a gradual approach" to changing 

the key rate, "guided by incoming data." As before, the Bank says it 

will "continue to assess the economy's sensitivity to interest rate 

movements and the evolution of economic capacity." Presently, the 

economy is operating "close to potential" 

     -- Canadian inflation likely will rise "a bit higher" than 

predicted in April, largely because of gasoline price increases. The BOC 

will "look through" the transitory impact of gasoline price increases on 

inflation, "as usual." 

     -- The BOC again expresses concern that "ongoing uncertainty about 

trade policies is dampening global investment" and says "stresses are 

developing in some emerging market economies." But it says exports of 

goods have been more robust than forecast and cites "some upside" to the 

U.S. growth outlook. 

     -- GDP growth is, as in April, projected to be "around 2%" in the 

first half of this year. Consumption remains a bulwark of growth in the 

Bank's projection: "solid labor income growth supports the expectation 

that housing will pick up and consumption will continue to contribute 

importantly to growth in 2018." 

     -- BOC says imports of machinery and equipment "suggest continued 

recovery in investment." On the other hand, "housing resale activity has 

remained soft into the second quarter" with the housing market still 

adjusting to new mortgage guidelines and higher borrowing rates. 

     --MNI Ottawa Bureau; yali.ndiaye@marketnews.com 

[TOPICS: M$C$$$,MACDS$]