March 1, 2017 / 3:20 PM / 8 months ago

UPDATE 2-Bank of Canada holds rates, watching 'significant uncertainties'

(Adds market reaction, analyst comments)

By Leah Schnurr and David Ljunggren

OTTAWA, March 1 (Reuters) - The Bank of Canada acknowledged on Wednesday that fourth-quarter growth might have been stronger than anticipated, but it left interest rates unchanged at 0.50 percent as it focused on the “significant uncertainties” facing the economy.

In an unusually short policy statement, the central bank maintained its cautious stance. It downplayed the fourth-quarter strength by pointing to the large amount of unused capacity in the economy and saying it was looking past the recent rise in inflation as being due to temporary factors.

Economists said the statement kept the bank’s dovish stance intact after Governor Stephen Poloz said in January that a rate cut remained on the table if the risks to the economy materialize.

“Effectively they’re saying not much has changed since January,” said BMO Capital Markets chief economist Doug Porter.

“We have had a wave of stronger-than-expected Canadian data, yet the bank is fairly steadfast in playing down some of the positives and highlighting some of the negatives.”

The Canadian dollar hit a five-week low following the statement. The bank cut rates twice in 2015 during a collapse in oil prices, and the statement reinforced analysts’ expectations that it will stay on the sidelines until next year.

The bank said it was still monitoring the risks outlined in its January Monetary Policy Report, which included lack of clarity over what policies U.S. President Donald Trump will enact.

While Trump has said the United States will be “tweaking” its relationship with Canada, the effects of his promised changes to trade and taxes are not clear, and his speech on Tuesday offered no new details. Canada sends 75 percent of its exports south of the border.

Recent consumption and housing market figures suggest economic growth in the fourth quarter may have been “slightly stronger” than the 1.5 percent the bank had forecast, the Bank of Canada said, but exports continue to face competition.

CIBC Capital Markets senior economist Royce Mendes said the Bank of Canada’s statement reflected that it would take time for “this desired rotation” from consumption and housing toward exports and investments.

In contrast to the United States, subdued wage growth and hours worked in Canada also showed persistent economic slack despite recent gains in employment, the central bank said. (Additional reporting by Alastair Sharp, Fergal Smith and Solarina Ho in Toronto; Editing by Denny Thomas and Lisa Von Ahn)

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