Bank of Canada maintains cautious approach

The Bank of Canada's policy statement, which pledged to keep interest rates at 1.00%, retained its cautious wait-and-see approach, despite the improvement in economic data. Given the strength of the Canadian dollar and financial troubles abroad, the Bank's cautious policy approach makes sense for now. Further ahead, however, we doubt the Bank's assumption of sustained growth in housing and consumption. As housing begins to falter under the weight of its own expectations, we think the Bank's biggest downside risk to domestic demand will begin to materialise. As such, we expect the Bank to keep interest rates on hold in the first half of this year, before lowering interest rates to 0.50% in the second half of this year.