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Canada central bank holds key lending rate at 1.25%

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Ottawa (AFP)

Canada's central bank on Wednesday maintained its key lending rate at 1.25 percent, saying the economy was chugging along but exporters face continued uncertainty over trade policies.

The Bank of Canada said that while the economy's strengthening this year warrants a hike in rates, it nonetheless would take a cautious or "gradual approach to policy adjustments."

"In particular, the bank will continue to assess the economy's sensitivity to interest rate movements and the evolution of economic capacity," it said in a statement.

The Bank of Canada last raised rates by 0.25 percent in January. Its next rate announcement is scheduled for July 11.

The bank noted that activity in the first quarter appeared to have been "a little stronger than projected" and exports were "more robust than forecast."

The Canadian economy, it said, is now "operating close to potential" and inflation is close to the bank's 2.0 percent target.

There was continued weakness in housing as the market adjusts to stricter mortgage rules, but data on imports of machinery and equipment suggested a "continued recovery in investment," it said.

The bank also noted "some upside" to the economic outlook for the United States -- Canada's neighbor and largest trading partner.

However, the bank said "ongoing uncertainty about trade policies" is dampening global investment, and "stresses" in some emerging market economies could create ripples that are likely to impact Canada.

Canada last year signed a free trade deal with Europe and more recently joined Pacific and South American trade blocs.

But the fate of the North American Free Trade Agreement (NAFTA) remains uncertain as difficult negotiations with Washington and Mexico appeared to have bogged down after nine months of talks.

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