* Central bank holds benchmark rate steady at 1.0 pct
* Repeats that rates could go up or down, depending on data
* Says risk of weak inflation remains
* Outlook for inflation, growth largely unchanged
* Sees soft landing in housing market
By Louise Egan and David Ljunggren
OTTAWA, March 5 The Bank of Canada continued to
express concerns about weak inflation on Wednesday, even after
consumer prices picked up markedly in January, and repeated that
its next move on interest rates could be either up or down.
The central bank left its benchmark interest rate unchanged
at 1.0 percent, as expected, extending a freeze that has lasted
more than three years. Analysts do not expect the bank to move
on rates until the third quarter of next year.
But the bank's views on inflation and the economy led to a
firming of the Canadian dollar, although analysts said there was
no significant shift in the bank's stance.
Even though the January inflation reading of 1.5 percent was
higher than expected, the bank maintained its view, outlined in
a report in January, that overall and core inflation would
remain well below its 2 percent target throughout 2014, and rise
to 2 percent in about two years.
"With inflation expected to be well below target for some
time, the downside risks to inflation remain important," the
bank said in a statement.
"The timing and direction of the next change to the policy
rate will depend on how new information influences this balance
of risks," it said, using language identical to its last rate
announcement on Jan. 22.
The bank targets 2 percent inflation, the midpoint of a 1 to
3 percent range, and has been worried that low prices may
reflect weak demand and intense retail competition. Policymakers
in the United States and Europe have also been grappling with
Doug Porter, chief economist at BMO Capital Markets, said
the bank was "fine-tuning" its message but not signaling any
major change in its outlook.
"For a change, they haven't turned the screw again towards
the dovish side," he said.
The Canadian dollar held stronger against the U.S.
dollar after the statement.
The currency was at C$1.1048 to the greenback, or 90.51 U.S.
cents, stronger than Tuesday's close of C$1.1100, or 90.09 U.S.
Yields on overnight index swaps, which trade based on
expectations for the policy rate, showed traders' expectations
were little changed. They are pricing in a very small chance of
a rate cut later this year.
STANCE ROUGHLY SAME AS JANUARY
The bank's tone was largely unchanged from January, when
Governor Stephen Poloz said the door was "slightly more open to
a rate cut" than before, although he described the bank's
overall stance as neutral.
Some market players had expected Poloz to sound less dovish
after saying on Feb. 22 that he was feeling "a little more
comfortable" about the latest inflation data. [ID: nL2N0LR07Z]
Those remarks had led market players to pare back their bets
of a rate cut.
The bank said on Wednesday it still expects underlying
economic growth of about 2.5 percent this year despite a
stronger-than-expected performance in 2013, saying the first
quarter is "likely to be softer".
Statistics Canada reported that the economy expanded by 2.9
percent, annualized, in the fourth quarter and made upward
revisions to its figures for growth in the first two quarters of
the 2013, indicating the economy had done better than the Bank
of Canada realized.
Still, the economy shrank in December, battered by severe
weather, and apart from a surge in job creation in January,
there has not yet been enough evidence for anyone to declare the
economy has rebounded.
The bank wants to see growth powered by exports and business
investment, which have taken a backseat to consumers since the
2008-09 recession. But that rebalancing of the economy is still
elusive, it said.
The recent data support its view that there will be a soft
landing in the Canadian housing market and the record-high
household debt-to-income ratio will stabilize, the bank said.
Economists say the bank may wait until after the
traditionally busy spring season in the housing market before
updating its outlook.
"The way the bank has teed it up, I think they're saying to
markets that we're going to take until probably at least
mid-year before we more seriously contemplate any stronger steps
in either direction on (rates)," said Derek Holt, vice president
of economics at Scotiabank.
The bank statement made no mention of the Canadian dollar,
which has dipped in value against its U.S. counterpart in recent
In its Jan. 22 rate statement, the bank said strong U.S.
demand and the recent depreciation of the Canadian dollar should
help to boost exports, business confidence and investment.