MNI POLICY: BOC Holds Rate 1.75%, Drops Phrase About Stimulus>

By Greg Quinn and Anahita Alinejad

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

1.75% while dropping language about that level providing stimulus, 

saying global trade fights will test the economy's resilience.

     Inflation will remain close to a 2% target through the next two 

years and output will grow enough to shrink already modest slack in the 

economy, policy makers said Wednesday from Ottawa. The global outlook 

has also weakened further since July and and Canada hasn't been "immune" 

to the damage. 

     "All things considered, Governing Council judges it appropriate to 

maintain the current level of the overnight rate target,'' the one-page 

decision said, a shift from the Sept. 4 phrase "the curent degree of 

monetary policy stimulus remains appropriate." 

     "In considering the appropriate path for monetary policy, the Bank 

will be monitoring the extent to which the global slowdown spreads 

beyond manufacturing and investment," the BOC said Wednesday. "In this 

context, it will pay close attention to the sources of resilience in the 

Canadian economy - notably consumer spending and housing activity - as 

well as to fiscal policy developments." 

     Governor Stephen Poloz is poised to take on the highest policy rate 

in the G7 with the U.S. Federal Reserve expected to cut this afternoon, 

bringing the risk of a surge in Canada's dollar that would further 

burden exporters. Poloz has resisted joining his global peers with 

stimulus this year by citing domestic strength while adding starker 

warnings on trade. 

     The BOC boosted its 2019 growth forecast to 1.5% from a July 

estimate of 1.3% on improvements in net exports and housing being fed by 

low mortgage rates. The expansion quickens to 1.7% next year and 1.8% in 

2021, though those rates are slower than July estimates of 1.9% and 

2%, respectively. 

     Another reason Canada will come even closer to full output is weak 

business investment that curbs how fast the economy can run before 

inflation pressure creeps in. 

     Inflation risks are "roughly balanced" when trade uncertainty 

is factored out, the BOC said. 

     In another contrast with other central banks, the BOC said trade 

policy risks are two-sided but tilted to the downside, a nod to the 

potential for tariffs to boost inflation and slow economic growth. 

Still, the BOC's forecast added a new risk of global disinflation 

citing persistently weak price pressure in many countries. 

     Inflation will be 2% this year, higher than a prior estimate of 

1.8%, the BOC said. Price gains slow to 1.8% next year in part because 

of a temporary dip in energy prices, and return to 2% in 2021.      

     The rate decision was consistent with the MNI economist median for 

no change.

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

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