The Bank of Canada kept its key interest rate unchanged at one per cent on Tuesday and offered no clues as to when increases might be in the offing.
In its latest decision, the central bank boosted its economic growth outlook for 2011 by a half-percentage point and signalled economic slack shrank faster than anticipated.
But that was offset by increased concern over the elevated Canadian dollar and the impact it might have on net exports, one of two key drivers of economic growth.
The rate decision ties in all the economic developments since the last policy statement on March 1 -from the earthquake and subsequent nuclear crisis in Japan to continued geopolitical unrest in North Africa to stellar Canadian data.
The statement attempted to strike a balance between positive and negative developments, and offered no hint that the Bank of Canada, led by governor Mark Carney, is ready to raise lending rates at its next policy decision on May 31.
The decision to stand pat Tuesday was widely anticipated by markets.
But the tone of the statement took some by surprise.
"It was not as hawkish as we had thought," said Jonathan Basile, director of economics at Credit Suisse Securities in New York. "There was no shift in policy guidance to indicate a near-term rate move."
The central bank said it continues to expect business investment to expand "rapidly."
As for net exports, however, the central bank raised a red flag, saying the recent improvement "is expected to be further restrained by ongoing competitiveness challenges, which have been reinforced by the recent strength of the Canadian dollar."
The Canadian dollar has gained against its U.S. peer on stronger commodity and stock prices, as well as a sell-off of the U.S. currency over concerns about Washington's willingness to tackle its fiscal morass.
"The first Bank of Canada hike still looks to be a July event, and will depend on the course of the Canadian dollar from here," said Avery Shenfeld, chief economist at CIBC World Markets.
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