UPDATE 2-Bank of Canada holds rates, says looking to federal budget

(Adds market reaction, analyst quotes, background)
By Leah Schnurr and David Ljunggren
OTTAWA, March 9 (Reuters) - The Bank of Canada held interest
rates steady on Wednesday, citing stronger non-energy exports
and an economy growing largely as expected, as it awaits this
month's federal budget to gauge the impact of the Liberal
government's stimulus plans.
The Canadian dollar firmed following the widely expected
decision, as the central bank appeared to shrug off a recent
rebound in the currency, saying that the rise in the exchange
rate and oil prices are in line with what was assumed in
January.
Traders had been looking to see what the bank would make of
the Canadian dollar's appreciation since its last monetary
policy meeting in January, with a weak currency seen essential
to boosting the export sector. While the currency has firmed
since hitting a 12-year low in January, it is still
significantly weaker than a year ago. CAD/
"There was some fear that the bank might address some of the
strength in the currency, but they ducked that pretty
effectively," said David Tulk, chief Canada macro strategist at
TD Securities.
As widely anticipated, the bank kept its overnight rate at
0.5 percent, where it has been since July 2015. The bank cut
rates twice last year to combat the impact of cheaper oil, a
major Canadian export.
Low oil prices are expected to continue to dampen growth in
Canada, though the U.S. expansion remains on track and recent
financial market volatility "appears to be abating," the bank
said.
Despite better-than-expected domestic growth in the fourth
quarter, the bank said the near-term outlook remained broadly
the same as its January assessment.
The economy grew at an annualized 0.8 percent clip in the
fourth quarter, topping the bank's expectations for no growth.
Economists anticipate this could set the first-quarter up to
exceed the bank's 1 percent forecast.
Overall, employment has held up and household spending is
supporting demand, while non-energy exports are gaining
momentum, particularly in currency-sensitive sectors, the bank
said.
An assessment of expected government measures will be
included in April's economic projections. The new Liberal
government will release its first budget on March 22 and a big
deficit is expected.
The bank maintained that inflation is evolving as expected,
with the factors that pushed total inflation up to its 2 percent
target likely to be unwound in the coming months.
It also reiterated that financial vulnerabilities continue
to edge higher due to regional shifts amidst a structural
adjustment in the broader economy.