June 4, 2020 / 6:15 PM / a month ago

UPDATE 2-Bank of Canada watching key export markets in COVID-19 recovery

(Adds comments from Gravelle)

By Kelsey Johnson and Julie Gordon

OTTAWA, June 4 (Reuters) - Canada’s central bank sees reason to be optimistic about the country’s economic recovery, but is keeping a close eye on how COVID-19 is affecting growth and demand in its key export markets, Bank of Canada Deputy Governor Toni Gravelle said on Thursday.

In a speech following the bank’s decision on Wednesday to hold its key interest rate steady, Gravelle made no mention of future policy moves and reiterated the bank thinks 0.25% is as low as rates can go without causing problems for the financial system.

Gravelle said there were clear signs that credit was flowing and financial markets were working well, a key factor in the strength of the recovery, but noted many risks and uncertainties remain.

“We will be paying close attention to how the pandemic is affecting growth and demand in key markets for Canadian exports,” Gravelle told a business audience in Sudbury, Ontario, by video conference.

Gravelle later told reporters that a global rebound would depend on how well containment measures work in other jurisdictions - including in the United States, Canada’s top trading partner - and said fits and starts in containment could lead to choppy economic growth.

Trade data released earlier on Thursday showed Canada’s imports and exports plunged in April on falling oil prices and shutdowns tied to the coronavirus pandemic, and trade with the United States slumped by C$23.4 billion ($17.35 billion).

Gravelle also said the bank was watching Canada’s hard-hit energy sector, which has been battered by low oil prices, as it could continue to weigh on economic growth even as the broader economy recovers from COVID-19.

The Canadian dollar was unchanged on Gravelle’s speech, holding near a three-month high. (Reporting by Kelsey Johnson and Julie Gordon in Ottawa; Editing by Leslie Adler and Richard Chang)

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