MNI 5 THINGS:BOC Key Rate Unch at 1.25%;Tone More Hawkish>

--Higher Policy Rates Coming But Monetary Stimulus Still Needed  

By Courtney Tower

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

Canada's interest rate announcement Wednesday, when the policy interest 

rate was maintained at 1.25%, as expected: 

     -- The Bank outlined an economy operating at or very near  

capacity, above potential output, over the next two years but with 

enough risks, particularly in world trade uncertainty, that it repeats 

its double-edged guidance. However, the tone was more hawkish as it said 

progress in inflation and wage growth dynamics "reinforces" the BOC's 

view that "higher interest rates will be warranted over time" but "some 

monetary policy accommodation will still be needed to keep inflation on 

target." The BOC will remain "cautious" and data dependent. 

     -- Risks to inflation are "roughly balanced," many of these are as 

outlined in January's Monetary Policy Report (MPR) but with higher 

emphasis on "heightened trade tensions." Others are the possibility of 

weaker Canadian business investment and exports: goods exports down by 

"about 1 per cent" in January-February this year. There also was the 

possibility of stronger-than-expected economic growth in the United 

States, good for Canadian exports and investment but also posing more 

competitiveness challenge on exports. 

     -- GDP growth is projected at 2.0% for 2018, down from 2.2% 

expected in January's MPR, but rebounding to 2.1% in 2019 (revised from 

1.6%). Potential output growth was revised up to 1.8% in 2018 from 1.4%, 

to 1.8% in 2019 from 1.5%. Trend labor productivity would pick up to 

+1.0% this year from 0.8% earlier expected, +1.1% in 2019 (versus 0.9%) 

and +1.2% in 2020 (versus 1.1%). 

     -- Slower economic growth in the first quarter this year mainly 

reflected weakness in housing, because of new mortgage guidelines and 

other policy measures, and in exports which "faltered, partly owing to 

transportation bottlenecks (in energy and commodities transmission to 

the United States)." Exports would strengthen again but not enough to 

recover  ground lost during recent quarters. Housing will rebound in the 

second quarter. 

     -- Business investment growth probably paused in the first quarter 

this year as major energy projects were completed in late 2017. Energy 

investment will be flat going forward, but a positive trend in 

investment spending otherwise "is expected to reassert itself in the 

second quarter of 2018." Import data signals "robust growth of 

investment in machinery and equipment."      

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

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