MNI POLICY: BOC Key Rate Stays At 1.50%, As Expected>

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 1.50%, as expected: 

     - With its economic outlook for the Canadian and global economies 

largely unchanged from what it perceived in July, when it raised the 

policy rate to 1.50% from 1.25%, the BOC said data "reinforce" its 

"assessment" that higher key rates will be warranted, based on incoming 

data and applied gradually. "In particular, the Bank continues to gauge 

the economy's reaction to higher interest rates," already applied, the 

central bank said in its fixed-date rate decision. The BOC also is 

"monitoring closely the course of NAFTA negotiations and other trade 

policy developments, and their impact on the inflation outlook." 

     - The BOC said that "elevated trade tensions remain a key risk to 

the global outlook" and were dragging down some commodity prices. There 

were intensified financial stresses in some emerging market countries 

but these had "limited spillover to other countries." 

     - Noting that Consumer Price Index inflation in July had moved up 

to 3%, the top of the Bank's 1%-3% target range, the Bank said it was 

due largely to a jump in air fares, adding inflation would move back to 

the 2% mid-range target "in early 2019." Moreover, the Bank's core 

measures of inflation "remain firmly around 2%, consistent with an 

economy that has been operating near capacity for some time." It also 

noted that "wage growth remains moderate." 

     - Canada's economy is evolving "closely in line" with the July 

projection of growth averaging near the economy's potential, the Bank 

said. First quarter growth of 1.4% on an annual basis was followed by a 

second quarter rebound to 2.9% "as the Bank had forecast" (actually, 

2.8% forecasted). The Bank saw GDP growth slowing "temporarily" in the 

third quarter this year, on "further fluctuations in energy production 

and exports." 

     - Uncertainty about trade policies "continues to weigh on 

businesses," the Bank said. Despite some "choppiness in the data," 

business investment and exports had been "growing solidly for several 

quarters." At the same time, housing market activity "is beginning to 

stabilize as households adjust to higher interest rates and changes in 

housing policies (meant to tame down activity)." Continuing gains in 

employment and in labor income were helping to support consumption. 

Meanwhile, credit growth had moderated and the household debt-to-income 

ratio "is beginning to edge down." 

     The next rate decision date is October 24, when the market expects 

a hike. 

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

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