MNI POLICY: BOC Keeps `Appropriate' Rate 1.75%, Warns on Trade>

By Greg Quinn

     OTTAWA (MNI) - The Bank of Canada amplified its warnings about 

global trade conflicts for a second meeting without giving a direct 

signal about cutting its key interest rate, saying unexpected domestic 

growth is keeping the economy on track.

     The target rate on overnight loans remained 1.75% where it's been 

all year, in line every prediction used to compile the MNI economist 

median. The one-page statement from Ottawa largely kept a key phrase 

about the rate being appropriate while saying the escalating U.S.-China 

trade fight has pushed down prices for exported commodities and inverted 

Canada's bond yield curve. 

     "In sum, Canada's economy is operating close to potential and 

inflation is on target," at 2%, policy makers led by Governor Stephen 

Poloz wrote in the decision. "However, escalating trade conflicts and 

related uncertainty are taking a toll on the global and Canadian 

economies. In this context, the curent degree of monetary policy 

stimulus remains appropriate."

     Other language in the statement signaled that trade risks may 

dominate the next decision due Oct. 30, a few days after Canada 

is set to hold a federal election. Dropping a reference to closely 

tracking Canada's energy industry, the statement said "Governing Council 

will pay particular attention to global developments and their impact on 

the outlook for Canadian growth and inflation."

     Days after U.S. President Donald Trump moved ahead with fresh 

tariffs on China, the BOC said trade policies have weakened global 

commerce and investment and sapped global "momentum" by more than the 

central bank predicted in July.

     Canada's economy showed unexpected strength in second-quarter GDP 

growth and in the latest inflation report for July, the central bank 

said, adding some of that appears temporary. The GDP report last 

Friday showed growth at a 3.7% annualized pace, the fastest in two 

years. Inflation was 2% in July, matching the BOC's target. 

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

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