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UPDATE 1-Bank of Canada holds rates, says trade conflicts will increasingly test economy

Kelsey Johnson

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OTTAWA, Oct 30 (Reuters) - The Bank of Canada maintained its key overnight interest rate at 1.75% as expected on Wednesday but cut domestic and global growth forecasts, saying the Canadian economy would be increasingly tested by trade conflicts.

The central bank, which has kept rates unchanged since October 2018 as counterparts around the world ease, said the current level of stimulus remained appropriate and made no mention of future moves.

In its first policy announcement since Prime Minister Justin Trudeau retained power in an election last week, the bank said trade tensions were restraining business investment while helping to cut commodity prices.

"Governing Council is mindful that the resilience of Canada's economy will be increasingly tested as trade conflicts and uncertainty persist," it said.

The bank revised its 2019 Canadian growth projection upwards to 1.5% from 1.3%, while reducing its 2020 and 2021 forecasts to 1.7% from 1.9% and 1.8% from 2.0%, respectively.

It cited weaker foreign demand, trade uncertainty and lower government spending in Alberta, the country's main oil-producing province. Employment, it added, continues to show strength while wages are improving.

The Bank of Canada has shown no appetite for cutting rates amid steady domestic economic activity, opting to sit on the sidelines even as some of its counterparts - including the U.S. Federal Reserve - have reduced borrowing costs or signaled their intention to loosen monetary policy.

The Fed, which in July cut rates for the first time since 2008, is expected on Wednesday to lower the range for its policy rate to below the Bank of Canada's equivalent rate for the first time since December 2016.

The Bank of Canada is forecast to wait until the first quarter of next year before easing, a Reuters poll of market operators found last week.

On Wednesday, Canada's central bank revised its 2019 global growth estimate downward to 2.9% from 3.0%, its weakest pace since the 2007-2009 global economic and financial crisis.

It trimmed its 2020 global growth forecast to 3.1% from 3.2% as trade conflicts weaken the world economy.

The bank said it would "be monitoring the extent to which the global slowdown spreads beyond manufacturing and investment" in its monetary policy considerations, while also watching consumer spending, housing activity and fiscal policy developments. (Reporting by Kelsey Johnson, Editing by David Ljunggren and Steve Orlofsky)