Canada's central bank left its benchmark target for the overnight rate unchanged at 0.50 percent, as expected, confirming its view that the risks to inflation were roughly balanced though financial vulnerabilities had continued to move higher.
The Bank of Canada (BOC), which cut its rate twice last year by a total of 50 basis points, added that the impact of the new federal budget, expected to be unveiled on March 22, would be incorporated into its new forecast that will be released at its next policy meeting in April.
The BOC said growth in the domestic and global economy were largely as it had projected in January with volatility in financial markets apparently abating and the expansion of the U.S. economy "broadly on track."
Canada's economic growth in the fourth quarter of last year was not as weak as it had expected, the BOC said, adding that non-energy exports were gathering momentum, particularly in those sectors that are affected by the exchange rate, although overall business investment remains very weak due to the retrenchment of the resource sector.
Canada's Gross Domestic Product grew by an annual 0.5 percent in the fourth quarter of 2015, down from 1.1 percent in the preceding two quarters and in January the central bank forecast growth of about 1-1/2 percent this year and 2-1/2 percent in 2017.
The BOC noted that the prices of oil and other commodities had rebounded in recent weeks, which has shifted expectations for monetary policy both in Canada and the U.S., helping the Canadian dollar.
"With these movements, both the price of oil and the exchange rate have averaged close to levels assumed in the January MPR," the BOC said.
Canada's dollar, known as the loonie, has fallen in sync with crude oil prices and lost 16.5 percent against the U.S. dollar last year.
But since mid-January it has rebounded and given further strength by the apparent bottoming of oil prices last month. Today it was trading at 1.34 to the dollar, up 3.7 percent since the start of the year.
The Bank of Canada issued the following statement: