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INSTANT VIEW-Bank of Canada holds rates, eyes U.S. policy uncertainty
January 18, 2017 / 3:38 PM / a year ago

INSTANT VIEW-Bank of Canada holds rates, eyes U.S. policy uncertainty

(Adds economist comments)

TORONTO, Jan 18 (Reuters) - The Bank of Canada held interest rates steady as expected on Wednesday, even as it nudged growth forecasts higher, saying the big unknown of U.S. President-elect Donald Trump’s policies makes it prudent to wait and see.

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ROBERT KAVCIC, SENIOR ECONOMIST AT BMO CAPITAL MARKETS:

”(There‘s) not a whole lot to change our outlook either way.

”There was a little bit of an upgrade to their U.S. forecast ... taking a very preliminary stab at assessing the kind of fiscal stimulus that’s going to be coming south of the border, but really only incorporating a very small amount of it at this time. Obviously it’s still subject to a lot of uncertainty. But on the flip side, still plenty of slack domestically in Canada with ... inflation now stuck below 2 percent (and) that past impact of the weaker currency falling out of the equation.

“You add it all up and it’s very neutral. It’s a picture of a Bank of Canada that’s going to be, as far as we can tell, on hold for quite some time.”

ANDREW KELVIN, SENIOR RATES STRATEGIST, TD SECURITIES:

”There is still a note of caution but they took the positive data we had for (the third and fourth quarter) on board, which they should. We have slightly higher GDP forecasts; still full capacity in mid-2018.

”They are giving themselves enough flexibility that if we were to get a very negative policy outcome from a major trading partner, they acknowledge that’s a risk. I think what this really hammers home is that they are in no mood to raise interest rates this year.

“I think the interest rate market is too optimistic on the prospects for the Canadian economy. They are too optimistic on the prospect of a hike, but (today’s announcement) isn’t going to be something that is going to shake their conviction.”

ROYCE MENDES, SENIOR ECONOMIST, CIBC:

”I don’t think there’s anything surprising in the rate announcement. There’s a few details that are interesting, however. We’ve got the Bank of Canada making a few assumptions about prospective tax policies in the U.S. resulting in a modest upward revision to their growth outloook.

”We see them highlighting the fact that Canada and the U.S. are in vastly different places at this point so we shouldn’t expect, as rates rise in the U.S., for the Bank of Canada to follow suit.

Reporting by Matt Scuffham, Fergal Smith, Alastair Sharp; Editing by Amran Abocar

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