By Leah Schnurr
OTTAWA, March 7 (Reuters) - Canada's trade deficit narrowed more than expected in January as imports pulled back from a record high, but exports tumbled by the most in six months as the country shipped fewer cars and forestry products, StatisticsCanada said on Wednesday.
The C$1.91 billion ($1.48 billion) gap was smaller than the C$2.50 billion shortfall forecast by economists.
The report was likely released too late to alter the Bank of Canada's interest rate decision due at 10 a.m. ET (1500 GMT).The central bank is widely expected to hold rates at 1.25percent and investors will watch the statement for any reference to heightened risks relating to trade. BOCWATCH
The Bank of Canada is already concerned about uncertainty over talks to update NAFTA and policy makers now have to contend with U.S. President Donald Trump's vow to impose tariffs on steel and aluminum.
Exports in January fell 2.1 percent -- the largest dropsince July 2017 -- from December's record high.
"There's reason to expect an even more cautious tone fromthe Bank of Canada," said Andrew Grantham of CIBC Economics,adding in a note to clients that the weakness in exports was abad indicator for monthly GDP.
The drop in exports came as prices for goods climbed 1.5percent, in part due to the Canadian dollar rising against itsU.S. counterpart in January.
Statscan said exports of passenger cars and light trucksfell due to unusual plant closures. Shipments of forestryproducts and building materials fell 6.6 percent as the UnitedStates resumed collecting import duties on Canadian lumber atthe end of 2017. Ross Prusakowski, a senior economist at Export DevelopmentCanada, noted the Canadian currency had weakened against thegreenback in recent weeks.
"As Statscan has highlighted, there were a couple oftransitory factors that affected a few key industries and thatshould in the near term kind of wash out of the data as well,"he said by phone.
Imports fell 4.3 percent as declines were broad based,including an 11.3 percent drop in industrial machinery andequipment. Canada's trade surplus with the United Statesnarrowed to C$3.13 billion.
Separately, Statscan said the labor productivity of Canadianbusinesses rose 0.2 percent in the fourth quarter as an increasein business output outpaced a slowdown in hours worked.
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