MNI POLICY: BOC Holds 1.75% Rate on Signs World Stabilizing>

By Greg Quinn and Anahita Alinejad

     OTTAWA (MNI) - The Bank of Canada held its key interest rate at 

1.75% and pared back pessimism about damage from global trade wars and 

domestic business investment.

     "There is nascent evidence that the global economy is stabilizing, 

with growth still expected to edge higher over the next couple of 

years," policy makers said Wednesday from Ottawa. "Financial markets 

have been supported by central bank actions and waning recession 

concerns, while being buffeted by news on the trade front," adding that 

trade fights remain the biggest danger.

     The shift in tone from October when Governor Stephen Poloz told 

reporters he considered a cut to deal with trade fights suggests the BOC 

may be more comfortable with keeping the highest policy rate in the G7 

after his peers offered stimulus earlier this year. Today's statement 

also reiterated the policy rate remains "appropriate" in an economy near 

full potential and inflation expected to hold at the BOC's 2% target. 

     Future decisions will be guided by the BOC's monitoring of 

resilient consumer spending and housing markets and the damage from 

trade wars. The next economic projection coming in January will also 

incorporate any fiscal policy changes, suggesting the BOC sees another 

boost to domestic demand. Justin Trudeau's newly re-elected Liberal 

government is signaling they will announce household tax cuts as soon 

as tomorrow in a Throne Speech. 

     The BOC also scaled back concern over the Canadian dollar, saying 

Wednesday that it has been "relatively stable" along with prices for 

commodities, which are key export drivers. In October policy makers said 

the currency had strengthened against non-US currencies even as 

commodity prices fell. 

     Policy makers continue to monitor for weaknesses in household 

finances, the BOC said, adding that the latest quarterly GDP report 

showed spending supported by growing wages and population. 

     Third-quarter GDP growth slowed to 1.3% annualized pace exactly as 

the BOC predicted, and policy makers said they would further assess 

whether a rebound in business investment is a sign of "renewed momentum" 

there. Spending on non-residential structures and machinery climbed 

9.5%, the fastest in three years, unexpected strength after a phase of 

cutbacks in energy and manufacturing. 

     "Based on developments since October, Governing Council judges it 

appropriate to maintain the current level of the overnight rate target," 

the BOC's statement said.  

     The rate decision was consistent with the MNI economist median for 

no change. Some investors and economists predict the BOC will follow its 

peers with a cut around the middle of next year as weakness in the 

global economy drags Canada down. 

--MNI Ottawa Bureau, +1-613-314-9647, greg.quinn@marketnews.com

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