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Bank of Canada holds key rate steady, but cites need for future hike

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Bank of Canada holds key rate steady, but cites need for future hike

The Bank of Canada left its key interest rate unchanged as it projected economic growth to decelerate in the third quarter amid heightened uncertainty over the North American Free Trade Agreement.

The central bank maintained its target for the overnight rate at 1.5% and the bank rate and deposit rates at 1.75% and 1.25%, respectively.

Canada's second-quarter GDP came in slightly below market expectations but in line with the central bank's forecast. The country also remains in a stalemate with the U.S. concerning a reworked NAFTA.

"GDP growth is expected to slow temporarily in the third quarter, mainly because of further fluctuations in energy production and exports," the bank said in a statement.

"While uncertainty about trade policies continues to weigh on businesses, the rotation of demand towards business investment and exports is proceeding," the bank added.

Still, the bank cited the need for a rate hike in the future after consumer prices rose more than expected in July.

"Recent data reinforce Governing Council's assessment that higher interest rates will be warranted to achieve the inflation target," the bank said, adding that it expects consumer price inflation to move back toward 2% in early 2019 as the impact of previous increases in gasoline prices dissipates.

The central bank said it will continue to take a gradual, data-dependent approach on monetary policy.

"In particular, the Bank continues to gauge the economy's reaction to higher interest rates," it said. "The Bank is also monitoring closely the course of NAFTA negotiations and other trade policy developments, and their impact on the inflation outlook."