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Bank of Canada holds interest rate: Official statement

13 January 2019

The Bank of Canada faces its first tough decision of 2019 on Wednesday - what to do about interest rates.

The bank is now projecting growth to be just 1.7 per cent this year, down from its October forecast of 2.1 per cent - but looking ahead it anticipates fresh momentum starting in the second quarter of 2019 and strong numbers in 2020.

Last month, Poloz called the current level of interest rates "appropriate for the time being".

"The global economic expansion continues to moderate, with growth forecast to slow to 3.4 per cent in 2019 from 3.7 per cent in 2018", the bank said in a press release.

Bank of Canada Governor Stephen Poloz has said future hikes will be data dependent.

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This year, oil demand growth is expected to stay robust, but expected slowdown in emerging market and developing economies (EMDEs) "could have a greater impact on oil demand than expected", the World Bank said.

The bank held its overnight interest rate at 1.75 percent, well below the "neutral" rate of 2.5 percent to 3.5 percent, where monetary policy is neither stimulative or accommodative.

In addition, global benchmark prices for oil have been about 25 per cent lower than assumed in the October Monetary Policy Report (MPR), reflecting sustained increases in USA oil supply and, more recently, increased worries about global demand, the bank said.

The bank also pointed to several areas of uncertainty Wednesday - the persistence of the crude-price drop, the extent of its impact on non-oil-producing regions, how household spending adjusts to previous interest-rate hikes and tighter mortgage rules, and global trade developments. It seems to be in no rush to hike, and it elevated developments in the nation's housing market to one of the three key factors that will determine the pace of policy normalization after data showed it "slowed markedly".

The bank noted signs that the U.S.

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The bank said it expects exports and non-energy investment to grow solidly, supported by foreign demand, the newly renegotiated free trade agreement with the USA and Mexico, the lower Canadian dollar, and federal tax measures targeted at investment.

The business-investment lift, the bank said, will get a boost from Ottawa's recently announced tax changes to allow companies to write off a bigger share of the cost of new assets in the year they are purchased.

The bank listed these factors as population growth fuelled by immigration, low unemployment rates, cheaper gasoline prices and wage gains.

The Bank of Canada now expects real GDP will grow by 1.7 per cent in 2019. But main focus of investors remain on Bank of Canada's Monetary Policy Update scheduled to release tomorrow and USA crude oil inventory data which is expected to boost CAD bulls as forecasts hint at draw in stock pile information.

Canada's sharp deceleration in wage growth since last spring has also been highlighted by experts as a concern for the economy - particularly since the tightened labour market should translate into higher wages.

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Bank of Canada holds interest rate: Official statement