Bank of Canada cuts growth forecast, warns again of higher rates

By Louise Egan and Randall Palmer

OTTAWA (Reuters) - The Bank of Canada on Wednesday chopped its economic growth forecast for the country and left interest rates unchanged but still insisted the next move in interest rates would likely be a hike.

In the last Monetary Policy Report before Governor Mark Carney leaves for the Bank of England, the Bank of Canada sharply downgraded growth expectations for the first and second quarters to below its 2.1 percent estimate of potential growth, meaning slack was continuing to grow.

It cut its prediction for 2013 annual economic growth to 1.5 percent -- matching this week's International Monetary Fund forecast -- from the 2.0 percent it saw in January, and hopes for 2.8 percent growth in 2014.

Nonetheless, as it has over the past year, the central bank warned of the prospect of higher interest rates down the road.

"With continued slack in the Canadian economy, the muted outlook for inflation, and the constructive evolution of imbalances in the household sector, the considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required..." the central bank stated.

RATE HIKE PUSHED OUT?

The bank's governing council reached its interest rate decision on Tuesday and released it on Wednesday with its quarterly Monetary Policy Report.

In the report, the Bank of Canada figured the economy's spare capacity grew to 1-1/4 percent in the first quarter, from the 1 percent it saw in January for the fourth quarter of 2012.

As a result, it will take longer for the economy to hit full capacity and for total and core inflation to rise to the bank's 2 percent target. It now sees this happening by mid-2015, whereas in January it had predicted the second half of 2014.

"It likely pushes (an interest rate hike) out even further. It's likely we won't have higher rates in Canada until well into 2015," said Bank of Nova Scotia chief currency strategist Camilla Sutton.

Sal Guatieri, senior economist at BMO Capital Markets, said the market had already pushed out its expectations for the next hike. "We still look for the bank to remain on hold until the second half of next year," he said.

The culprits for the lower growth this year are downward revisions to growth in government spending, more contraction in housing than forecast, and less-than-expected business investment. It saw signs that factors weighing on business investment were "likely to persist for some time."

Concern over housing is one reason Carney has not dropped the bank's year-long tightening bias as some economists have suggested. But the insistence that the next movement in interest rates is likely up rather than down has also boosted the Canadian dollar.

The bank said the currency's persistent strength was influenced by safe-haven flows and spillovers from global monetary policy, and this continued to restrain export growth.

Despite the export troubles, one bright prospect is the U.S. housing recovery, which the bank projects will boost Canadian export growth by 1 percentage points per year.

Canada has been an outlier among major developed economies, eschewing the unconventional quantitative easing used by the U.S. Federal Reserve, the Bank of England and now the Bank of Japan.

Before Wednesday's statement, global forecasters pushed back their forecasts for the Bank of Canada's next hike to the third quarter of 2014 from the first quarter in a poll in February.

Yields on overnight index swaps, which trade based on expectations for the policy rate, showed traders slightly scaled back their bets of a rate cut later this year.

The Canadian dollar moved was little changed after the announcement at C$1.0265 to the U.S. dollar, or 97.42 U.S. cents, but weaker than Tuesday's North American close of C$1.0205, or 97.99 U.S. cents.

Canadian inflation has long been below the 2 percent target -- overall annual inflation was 1.2 percent in February. The Bank of Canada said that in addition to spare capacity, inflation was subdued by competitive pressures on retailers.

Among those competitive pressures, it noted the expansion of big-box stores, the arrival of large U.S. retailers, and increased online and cross-border shopping, stimulated by the strong Canadian dollar.

(Additional reporting by Alastair Sharp, Cameron French and Solarina Ho in Toronto; Editing by W Simon)

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Say again? Some zingers from Venezuelan campaign

CARACAS, Venezuela (AP) — Venezuela's animated campaign ahead of its April 14 presidential election has seen its share of shake-your-head remarks by both candidates: Interim President Nicolas Maduro of the ruling party, and opposition candidate Henrique Capriles. Here's a sampling:

ON CHAVEZ:

Maduro, talking about Chavez's apparition as a "little bird" as Maduro was praying:

"It sang, and I responded with a song and the bird took flight, circled around once and then flew away, and I felt the spirit and blessings of Commander Hugo Chavez for this battle." (Maduro added sounds of wings flapping and bird chirps.)

Capriles' response:

"I believe he ate a little bird, because that's what he's got inside his head."

Maduro:

"Now the bourgeoisie and the right are talking about Maduro's little bird. What do they think? That we're ridiculous? Show some respect, gentlemen."

ON WHY PEOPLE VOTE:

Capriles:

"The act of voting is a rational, and emotional, act."

ON CHAVEZ (II):

Maduro:

"I don't have any doubt that if any man who walked this earth did what was needed so that Christ the redeemer would give him a seat at his side, it was our redeemer liberator of the 21st century, the comandante Hugo Chavez."

ON THE POLLS:

Capriles, on polls showing him trailing:

"I don't think there is any poll that can take a snapshot of what is happening in Venezuela."

ON CONSPIRACY:

Maduro:

"In homage and in honor of our commander there is but one destiny: Victory, the victory of the Venezuelan people against the forces of evil, against the forces of darkness."

ON THE NUMBERS:

Capriles, who lost an October election to Chavez by 8 million to 6.5 million votes, or 55-45 percent:

"For them to get the same amount of votes as the president (Chavez), to me would be fraud. ... I'm not sure anyone would believe it."

ON MY OPPONENT:

Capriles, on Maduro:

"I tell you clearly, Nicolas, I am not going to speak of the times you lied to the country, shamelessly. ...The people have not voted for you, boy."

Maduro, on Capriles:

"He's become crazy. His eyes are popping out of his head. Why are they popping out? Whatever the reason, he's obsessed with me."

ON RELATIONSHIPS:

Capriles, who is single, responding to Maduro's public suggestions that he is gay:

"I'm like a captain of a ship: I have a woman in every port."

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Hockey helps Canada's economy grow again in January

By Louise Egan

OTTAWA (Reuters) - Canada's economy bounced back from a year-end slump in January thanks to factories, mines and the return of professional ice hockey, but growth still looks too weak to match the central bank's upbeat outlook and interest rates are unlikely to budge until 2014.

Gross domestic product expanded by 0.2 percent in the month, Statistics Canada said on Thursday, following the weakest two quarters since the 2008-09 recession and a 0.2 percent contraction in December.

A comeback in the manufacturing sector helped spark the turnaround, along with strength in the mining and energy sectors and the delayed start of the country's beloved hockey season after National Hockey League players and owners settled a months-long labor dispute.

The data suggests the economy is starting the year on a more solid footing after disappointing 0.6 percent annualized growth in the fourth quarter.

But economists are betting the first quarter will fall far short of the central bank's projected 2.3 percent growth.

"Once the darling of advanced economies, Canadian economic growth is expected to converge to be more in line with its peers," said Mazen Issa, macro strategist at TD Securities.

Canada recovered much more quickly from the 2008-09 recession than did the United States and others but has been spinning its wheels for several months as exports and manufacturing sputtered.

That has forced the Bank of Canada to acknowledge there is more slack in the economy than it had anticipated. As a result, it has gradually softened its talk of an interest rate increase, and this month said rates will remain on hold "for a period of time".

Issa said the January report was in line with TD's forecast of 1.6 percent growth in the first three months of the year, "and the broader narrative of a gradual grind higher over the course of the year."

The central bank will publish updated forecasts alongside its next interest rate decision on April 17.

Manufacturing expanded 1.2 percent in January as gains in fabricated metals and wood products offset a decline in transportation equipment.

The mining, quarrying and oil and gas extraction industry expanded 0.2 percent, while the arts and entertainment sector got a one-time boost of 4.1 percent as Canadians flocked to hockey arenas and sports pubs after the NHL labor dispute ended.

Players and owners reached a deal in January to end a four-month lockout of players. Canada has NHL teams in Vancouver, Calgary, Edmonton, Winnipeg, Toronto, Ottawa and Montreal.

Industries that shrank in January included agriculture and forestry, construction, and finance and insurance.

In a separate report, Statscan said Canadian industrial product prices increased 1.4 percent in February from January, the biggest jump since June 2008 as prices for petroleum, coal and other commodities charged higher.

The Canadian dollar hit its strongest level in more than a month - at C$1.0145 versus the U.S. dollar, or 98.57 U.S. cents - immediately after the release of data. It later retreated and was little changed from Wednesday's North American close of C$1.0165, or 98.38 U.S. cents.

The solid GDP report along with an inflation rate that is below the Bank of Canada's 2 percent target has confirmed market expectations that the bank will hold rates at the current 1.0 percent until 2014.

"We're looking at possible downward growth revisions from the BoC again ... alongside slightly higher spare capacity estimates. We continue to expect an incrementally more dovish Monetary Policy Report in a couple of weeks," said Derek Holt, economist at Scotiabank.

Global forecasters surveyed by Reuters in February predicted the next rate hike will be in the first quarter of 2014. However, traders are pricing in a slight bias towards a rate cut later this year, based on yields on overnight index swaps, which trade based on expectations for the policy rate.

(Editing by Jeffrey Hodgson; and Peter Galloway)

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Hockey helps Canada's economy grow again in January

By Louise Egan

OTTAWA (Reuters) - Canada's economy bounced back from a year-end slump in January thanks to factories, mines and the return of professional ice hockey, but growth still looks too weak to match the central bank's upbeat outlook and interest rates are unlikely to budge until 2014.

Gross domestic product expanded by 0.2 percent in the month, Statistics Canada said on Thursday, following the weakest two quarters since the 2008-09 recession and a 0.2 percent contraction in December.

A comeback in the manufacturing sector helped spark the turnaround, along with strength in the mining and energy sectors and the delayed start of the country's beloved hockey season after National Hockey League players and owners settled a months-long labor dispute.

The data suggests the economy is starting the year on a more solid footing after disappointing 0.6 percent annualized growth in the fourth quarter.

But economists are betting the first quarter will fall far short of the central bank's projected 2.3 percent growth.

"Once the darling of advanced economies, Canadian economic growth is expected to converge to be more in line with its peers," said Mazen Issa, macro strategist at TD Securities.

Canada recovered much more quickly from the 2008-09 recession than did the United States and others but has been spinning its wheels for several months as exports and manufacturing sputtered.

That has forced the Bank of Canada to acknowledge there is more slack in the economy than it had anticipated. As a result, it has gradually softened its talk of an interest rate increase, and this month said rates will remain on hold "for a period of time".

Issa said the January report was in line with TD's forecast of 1.6 percent growth in the first three months of the year, "and the broader narrative of a gradual grind higher over the course of the year."

The central bank will publish updated forecasts alongside its next interest rate decision on April 17.

Manufacturing expanded 1.2 percent in January as gains in fabricated metals and wood products offset a decline in transportation equipment.

The mining, quarrying and oil and gas extraction industry expanded 0.2 percent, while the arts and entertainment sector got a one-time boost of 4.1 percent as Canadians flocked to hockey arenas and sports pubs after the NHL labor dispute ended.

Players and owners reached a deal in January to end a four-month lockout of players. Canada has NHL teams in Vancouver, Calgary, Edmonton, Winnipeg, Toronto, Ottawa and Montreal.

Industries that shrank in January included agriculture and forestry, construction, and finance and insurance.

In a separate report, Statscan said Canadian industrial product prices increased 1.4 percent in February from January, the biggest jump since June 2008 as prices for petroleum, coal and other commodities charged higher.

The Canadian dollar hit its strongest level in more than a month - at C$1.0145 versus the U.S. dollar, or 98.57 U.S. cents - immediately after the release of data. It later retreated and was little changed from Wednesday's North American close of C$1.0165, or 98.38 U.S. cents.

The solid GDP report along with an inflation rate that is below the Bank of Canada's 2 percent target has confirmed market expectations that the bank will hold rates at the current 1.0 percent until 2014.

"We're looking at possible downward growth revisions from the BoC again ... alongside slightly higher spare capacity estimates. We continue to expect an incrementally more dovish Monetary Policy Report in a couple of weeks," said Derek Holt, economist at Scotiabank.

Global forecasters surveyed by Reuters in February predicted the next rate hike will be in the first quarter of 2014. However, traders are pricing in a slight bias towards a rate cut later this year, based on yields on overnight index swaps, which trade based on expectations for the policy rate.

(Editing by Jeffrey Hodgson; and Peter Galloway)

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Kerry meets again with Afghan President Karzai

KABUL (AP) — U.S. Secretary of State John Kerry has talked further with Afghan President Hamid Karzai, a day after they put on a show of unity as they tried to end recent bickering over anti-American comments made by the Afghan leader.

Kerry was also holding a series of meetings at the American Embassy in Kabul before wrapping up his short visit.

He will meet participants in a U.S.-backed women's entrepreneurship program as well as civic leaders playing a role in preparing for Afghanistan's 2014 elections. Kerry leaves the country later Tuesday.

On Monday, Kerry said he had asked Karzai about the comments and was very satisfied with the president's explanation. He said the two countries were on the same page as international forces prepare to end combat operations in 2014.

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Cricket-Suspended Watson wants to play for Australia again

SYDNEY, March 12 (Reuters) - Suspended Australia vice-captain Shane Watson is determined to play for his country again and dismissed on Tuesday suggestions that he had a poor relationship with captain Michael Clarke.

Watson was one of four Australia players suspended from the third test in India for a breach of discipline because they failed carry out a task set for them by coach Mickey Arthur which was to present three ideas on how the team could improve.

Mitchell Johnson, James Pattinson and Usman Khawaja were also dropped for the same reason.

Asked whether this would be the end of his test career, Watson, quoted by local media, replied: "I hope not."

Watson, who returned to Australia earlier in the day to be with his heavily pregnant wife, accepted responsibility for his actions but questioned the severity of the punishment.

"I accept that I did the wrong thing with what I did, but I will always find it very hard to accept being suspended from a test match for my country," he was quoted as saying by The Sydney Morning Herald newspaper.

"I've missed test matches and games through injury throughout my career. I feel like I've worked my absolute bum off to have an opportunity to represent my country.

"When that's taken away from you, you think the actions must be very severe. That's where we differ on our opinions. I think it's extremely harsh. I expressed my extreme disappointment with the punishment. But everything happens for a reason in your life."

TEAM PLAYER

Watson took aim at Cricket Australia high performance manager Pat Howard, who had earlier said Watson was only "sometimes" a team player.

"All I can really say is go around and ask every person I've ever played cricket with and that will give you the best indication of whether I'm a team man or not," he said.

"Pat Howard doesn't particularly know me very well. He's come from a rugby background and hasn't been in and around cricket very long."

He also challenged Howard's view that he and captain Clarke needed to "sort out their issues", saying that relationships were always complicated.

"I've been playing cricket with and against Michael Clarke since I was 12. We've got a lot of history as people. We're obviously quite different people in certain ways but very very similar in a lot of ways as well," he said.

"In the end, like you do in every relationship, it goes up and down and things are going really well at the moment with me and Michael."

The three other suspended players have remained with the team and Pattinson said although it might seem like a heavy punishment there could be long-term benefits.

"People might say it's a harsh punishment for a small thing, but I think if we look outside the actual thing we did wrong, it's the other stuff as well and it builds up," he was quoted as saying on the Cricket Australia website (www.cricket.com.au).

"If you look really deeply like I did at it, you can see why it's actually happened, I think it's just going to hold us in a better team, better mentality and I think a better culture in the long run.

"We've got a group of young players that are all striving for the same thing, so I think this is just that kick in the bum to make you really realise what we've got and what we really want and that is to get to number one."

India crushed Australia by eight wickets and an innings and 135 runs in the first two tests and the touring side must win the last two matches to level the series. (Writing by Sonia Oxley in Manchester,; Editing by Ed Osmond)

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Suspended Watson wants to play for Australia again

SYDNEY (Reuters) - Suspended Australia vice-captain Shane Watson is determined to play for his country again and dismissed on Tuesday suggestions that he had a poor relationship with captain Michael Clarke.

Watson was one of four Australia players suspended from the third test in India for a breach of discipline because they failed carry out a task set for them by coach Mickey Arthur which was to present three ideas on how the team could improve.

Mitchell Johnson, James Pattinson and Usman Khawaja were also dropped for the same reason.

Asked whether this would be the end of his test career, Watson, quoted by local media, replied: "I hope not."

Watson, who returned to Australia earlier in the day to be with his heavily pregnant wife, accepted responsibility for his actions but questioned the severity of the punishment.

"I accept that I did the wrong thing with what I did, but I will always find it very hard to accept being suspended from a test match for my country," he was quoted as saying by The Sydney Morning Herald newspaper.

"I've missed test matches and games through injury throughout my career. I feel like I've worked my absolute bum off to have an opportunity to represent my country.

"When that's taken away from you, you think the actions must be very severe. That's where we differ on our opinions. I think it's extremely harsh. I expressed my extreme disappointment with the punishment. But everything happens for a reason in your life."

TEAM PLAYER

Watson took aim at Cricket Australia high performance manager Pat Howard, who had earlier said Watson was only "sometimes" a team player.

"All I can really say is go around and ask every person I've ever played cricket with and that will give you the best indication of whether I'm a team man or not," he said.

"Pat Howard doesn't particularly know me very well. He's come from a rugby background and hasn't been in and around cricket very long."

He also challenged Howard's view that he and captain Clarke needed to "sort out their issues", saying that relationships were always complicated.

"I've been playing cricket with and against Michael Clarke since I was 12. We've got a lot of history as people. We're obviously quite different people in certain ways but very very similar in a lot of ways as well," he said.

"In the end, like you do in every relationship, it goes up and down and things are going really well at the moment with me and Michael."

The three other suspended players have remained with the team and Pattinson said although it might seem like a heavy punishment there could be long-term benefits.

"People might say it's a harsh punishment for a small thing, but I think if we look outside the actual thing we did wrong, it's the other stuff as well and it builds up," he was quoted as saying on the Cricket Australia website (www.cricket.com.au).

"If you look really deeply like I did at it, you can see why it's actually happened, I think it's just going to hold us in a better team, better mentality and I think a better culture in the long run.

"We've got a group of young players that are all striving for the same thing, so I think this is just that kick in the bum to make you really realise what we've got and what we really want and that is to get to number one."

India crushed Australia by eight wickets and an innings and 135 runs in the first two tests and the touring side must win the last two matches to level the series.

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