Changes to U.S. trade policy pose greatest risk to Canada’s economic outlook, warns Bank of Canada

Bank of Canada held interest rate unchanged at 0.5 percent at its latest policy decision on Wednesday, but warned of persistent risks that suggest it will not hike anytime soon. In January, BoC governor Poloz had left the door open to a possible rate cut, citing the uncertainty surrounding the U.S. trade agenda and the lacklustre state of the Canadian economy.

But following the string of solid numbers, the bank acknowledged the improvements and raised growth expectations. It now forecasts real gross domestic product to expand at an annual rate of 2.6 percent this year, up from its January forecast of 2.1 percent.

The bank, however, also reiterated still-present downside risks highlighted by the U.S. uncertainty. Governor Stephen Poloz and Senior Deputy Governor Carolyn Wilkins in a second day of testimony after releasing the bank’s closely watched monetary policy report on Wednesday warned a Senate committee of the possible impact of changes to U.S. trade policy, saying it is the greatest risk to Canada’s economic outlook.

TD Bank senior economist Brian DePratto said it's a "little difficult to square" the bank's stronger projections, such as its bigger growth forecast, with the more downbeat tone of its accompanying statement.