MNI POLICY:BOC Key Rate Unch;Outlk Warrants Below-Neutrl Rate>

By Courtney Tower

     OTTAWA (MNI) - Following are the key points from the Bank of 

Canada's decision Wednesday to maintain its overnight rate at 1.75% and 

to suggest that it will be maintained for some time: 

     - The BOC, maintaining its policy rate at 1.75%, declared that 

Canada's economic outlook "continues to warrant a policy interest rate 

that is below its neutral range." The Bank's stance has been for some 

months that the rate would have to, at an unspecified time, rise to its 

neutral range (2.5%-3.5%). Now, it states that a recent mixed picture of 

data (low 4th quarter GDP prominent among them, but strong job growth) 

means that "it will take time to gauge the persistence of 

below-potential growth and the implications for the inflation outlook." 

     - The statement reinforced the prospect of there being a long wait 

for a new policy rate increase by saying "with increased uncertainty 

about the timing of future rate increases," the Bank would closely watch 

"developments in household spending, oil markets and global trade 

policy." These are key factors the data-dependent BOC has been 

discussing for some time. 

     - The Bank also said the economy is likely to be weaker in the 

first half of this year than it had projected in January. The economic 

slowdown in the 4th quarter last year was "sharper and more 

broadly-based" than the Bank had expected, although it had forecast a 

temporary slowdown in late 2018 and early 2019, mainly on lower oil 

prices. But exports and business investment have fallen "short of 

expectations" while consumer spending and the housing market "were 

soft." The Bank noted that, on the other hand, there had been "strong 

growth in employment and labor income."  

     - On the inflation front, it said core readings remain close to the 

2% target. It expected CPI headline inflation to be slightly below 2%, 

reflecting temporary factors, including the drag from lower energy 

prices and a wider output gap. 

     - The Bank also noted that the global slowdown "has been more 

pronounced and widespread" than it had predicted in January. Trade 

tensions and uncertainty were largely the cause, "weighing heavily on 

confidence and economic activity." Resolution of current trade conflicts 

would buoy global economic prospects, it said. 

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

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