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Bank of Canada: Growth picking up in Q2, but trade tensions still cloud outlook

The Bank of Canada struck a more optimistic tone on the country's economic rebound from a recent slump, but policymakers continued to warn against increased global trade risks as they left interest rates unchanged.

The central bank said "accumulating evidence" from recent economic data has reinforced its view that growth has started to pick up in the second quarter after a temporary slowdown in late 2018 and early 2019.

In the second quarter, oil production, exports and consumer spending have all increased, the central bank said, while business investment growth has firmed and the housing market has become more stable.

Canada's recent agreement with the U.S. and Mexico to lift steel and aluminum tariffs could also boost Canadian exports and investment, the bank added.

However, the central bank also warned that the recent escalation of trade tensions is "heightening uncertainty about economic prospects," with new trade restrictions imposed by China directly affecting Canadian exports.

"In this context, the degree of accommodation being provided by the current policy interest rate remains appropriate," the central bank said in its May 29 monetary policy statement.

The central bank, which in April abandoned its bias toward possible future rate hikes, kept its target for the overnight rate unchanged at 1.75%. The bank rate and the deposit rate were also maintained at 2% and 1.5%, respectively.

Consumer price inflation is expected to remain around the 2% target in the coming months, and core inflation measures are still close to that level, according to the central bank.