MNI POLICY:BOC Key Rate Stays At 1.75%,Eyeing Oil Price Shock>

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 stayed at 1.75%, as expected: 

     -- The BOC adopted a more cautious edge in its statement than 

October. It said "the policy interest rate will need to rise into a 

neutral range," which it has identified as 2.5%-3.5%. It added, "the 

appropriate pace of rate increases" to come would depend, as before, on 

"the effect of higher interest rates on consumption and housing," and on 

"global trade policy developments." Other important factors would 

include the persistence of the "oil price shock", how business 

investment evolves, and Canada's productive capacity. 

     -- Inflation has been evolving as expected, the BOC said, with its 

three core measures tracking the 2% target, reflecting an economy 

operating close to capacity. But CPI inflation, at 2.4% in October, is 

expected to ease by more than previously forecast because of lower 

gasoline prices. Importantly, the statement said "there may be 

additional room for non-inflationary growth."  

     -- The BOC statement cited emerging signs that trade conflicts are 

"weighing more heavily on global demand." However, "encouraging 

developments" at the G20 remind risk around trade policy is two-sided, 

it said. Growth in major advanced economies has slowed, although U.S. 

growth remains above potential. The sharp fall in oil prices and 

Canadian transportation constraints mean that "activity in Canada's 

energy sector will likely be materially weaker than expected." 

     -- While the economy grew in line with the Bank's earlier 

projection in the third quarter (by 2.0% versus the BOC's expected 

1.8%), the BOC acknowledged that weaker data presently "suggest less 

momentum going into the fourth quarter." 

     -- Business investment, on which the BOC has long counted for  

economic growth, fell in the third quarter but the BOC continues a long 

refrain that it expects this category to improve. Improvement, however, 

would be "outside the energy sector." That non-energy improvement, 

"along with strong foreign demand," should support export growth, it 

said. Household credit and regional housing markets "appear to be 

stabilizing," a positive sign for the economy, but the BOC continues its 

concern for the impact on builders and buyers of "tighter mortgage 

rules, regional housing policy changes, and higher interest rates." 

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

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