Canada central bank keeps key lending rate at 0.5pc

OTTAWA: Canada's central bank maintained its key lending rate at 0.5 percent Wednesday, taking a cautious stance amid uncertainty over trade with the United States.

Indicators such as business investment, consumer spending and jobs figures are improving and "becoming more broadly based across regions," but exports continue to lag, the Bank of Canada said in a statement.

Most of Canada's exports go to its southern neighbor, the United States. In three months, the two nations along with Mexico will start talks to renegotiate the North American Free Trade Agreement (NAFTA).

If they fail to come to a new deal, President Donald Trump has vowed to pull the United States out of the continental trade pact.

The Canadian central bank noted that US growth in the first three months of the year was weak due to "mostly temporary factors."

"Recent data point to a (US) rebound in the second quarter," it said.

At the same time, the global economy is gaining traction and is expected to "gradually strengthen and broaden."

However, "uncertainties... continue to cloud the global and Canadian outlooks," the bank concluded.

The Canadian economy, meanwhile, has "adjusted" to lower oil prices, it said. Canada is the world's sixth largest oil producer.

Inflation has temporarily fallen lower as food prices continued to decline due to heightened retail competition.

Canadian wage growth is also "still subdued," the bank said.

The Bank of Canada's "decision to stand pat on rates lies less in any real troubles on the ground than in uncertainties that Washington politics represent for trade," opined CIBC Economics analyst Avery Shenfeld.

He predicted the bank would raise interest rates in early 2018 after getting some "clarity on trade policy stateside."

In the meantime, the bank is keeping rates at near-historic lows in order to keep the Canadian dollar low relative to the US greenback and other currencies, Shenfeld suggested.

But even at today's exchange rate, he noted, the bank is predicting "ongoing competitive challenges" for exporters.