In a widely expected decision, the Bank of Canada on Wednesday announced that it left its policy rate unchanged at 1.75% at its January policy meeting. In its policy statement, the BoC noted that it sees less risk of an extreme downside scenario related to trade tensions.
"Sharp escalations of Middle East tensions could have a significant effect on the economy," the bank said and added that it assumes that this risk will not materialize. "The total impact of trade tensions expected to cut global GDP by 1.2% by the end of 2021, down from 1.3% forecast in October."
With the initial market reaction, the USD/CAD pair jumped to 1.3100, where it was up 0.28% on the day.
Key takeaways from the policy statement
"Data for Canada indicate that growth in the near term will be weaker, and the output gap wider, than the Bank projected in October."
"Looking ahead, Canadian business investment and exports are expected to contribute modestly to growth, supported by stronger global activity and demand."
"In determining the future path for the Bank’s policy interest rate, Governing Council will be watching closely to see if the recent slowdown in growth is more persistent than forecast."
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