Bank of Canada Leaves Rates Unchanged, Calls Economic Data Encouraging -- Update

By Paul Vieira Features Dow Jones Newswires

The Bank of Canada left its main interest rate unchanged Wednesday at 0.50%, while a sounding a positive note about recent economic indicators that point to "very strong" growth in the first quarter.

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The central bank said it expects growth to tail off somewhat in the second quarter. It also cautioned in its statement that trade-policy uncertainty in Washington continued to cloud the outlook, and subdued inflation and wage growth were consistent with "excess" slack -- or unused production and labor capacity -- in the economy.

The decision to leave its benchmark rate as is was widely expected in a survey of 11 primary dealers of Canadian government securities. The Bank of Canada's policy interest rate has been at 0.50% since July 2015.

Economists expected the central bank to maintain a cautious tone, amid the risk posed by changes in U.S. trade policy for Canada's economy. Roughly three-quarters of Canadian exports, or the equivalent of 20% of the country's total economic output, are U.S.-bound.

The most notable difference between Wednesday's rate decision and the statement it delivered last month was an increased sense of optimism about a turnaround in Canadian economic activity.

"The Canadian economy's adjustment to lower oil prices is largely complete and recent economic data have been encouraging, including indicators of business investment," the bank said in its five-paragraph statement explaining its rationale to maintain the status quo on rates. The central bank has long waited for an upswing in capital spending and nonenergy exports to help drive growth, and take over from debt-laden consumers.

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"The bank's monitoring of the economic data suggests that very strong growth in the first quarter will be followed by some moderation in the second quarter."

Write to Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

May 24, 2017 10:31 ET (14:31 GMT)