Bank of Canada Raises Key Interest Rate To 1.50%

12 July, 2018, 03:41 | Author: Eric Barnett
  • Bank of Canada Governor Stephen Poloz speaks at a press conference in Ottawa on Thursday

The central bank says Canadian growth will continue to see bigger contributions from exports and business investment, while it expects household spending to represent a smaller share due to the dampening effects of higher interest rates and stricter mortgage rules.

Citing a prudent, data-dependent approach, Poloz hasn't touched the rate since he increased it in January, a move that followed increases previous year in September and July. He added that the unknowns around trade could also include positive developments such as the successful renegotiation of the North American Free Trade Agreement over the coming months.

"The data has not disappointed", Caranci said Monday in an interview.

US tariffs on the auto sector's integrated cross-border supply chains would have "large impacts on investment and employment", the Bank of Canada warned Wednesday in its accompanying monetary policy report.

CPI and the Bank's core measures of inflation remain near 2 per cent, consistent with an economy operating close to capacity. The Bank Rate is correspondingly 1 ¾ per cent and the deposit rate is 1 ¼ per cent.

Poloz said despite the combined effects of the metals levies, and earlier US tariffs on products like softwood lumber, the bank still projects Canadian growth to average a promising level of two per cent over the next few years, just slightly above its potential and with inflation already on target.

However, the central bank said it would take a gradual approach to future rate increases amid mounting tensions over trade with the USA, among other uncertainties. Instead, the numbers have pointed to healthier sentiment and very strong investment over the first six months of 2018.

So what does the rate hike mean for Canadians?


Undaunted by expanding trade risks, the Bank of Canada governor Stephen Poloz raised the interest rate Wednesday and signalled the economy's resilience is keeping him on a hiking trajectory.

Higher inflation figures are a signal Poloz has a green light to hike the rate, but trade developments since the central bank's last meeting - including stalled NAFTA talks and a possible trade war between the US and China - will be enough to give Poloz pause, the National Bank of Canada wrote in a recent note.

Other experts argue that in the current context there's no real link between monetary policy and Canada's ongoing trade uncertainties.

As in April, the projection incorporates an estimate of the impact of trade uncertainty on Canadian investment and exports.

"We felt it appropriate to set aside this risk and make policy on the basis of what has been announced", he said.

Anything with a variable rate will go up. I don't believe that.

Investments that have a fixed rate of return, like Guaranteed Investment Certificates (GICs), often rose along with interest rates.

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