Saturday, 17 November, 2018

Bank of Canada raises key interest rate target to 1.5 per cent

Stephen Poloz Bank of Canada Governor Stephen Poloz speaks at a press conference in Ottawa on Thursday
Jean Garcia | 13 July, 2018, 00:03

And when it comes to the trade risks, House said the central bank has likely been reassured by the positive performances of key economic indicators over the last six months, notwithstanding the intense uncertainty surrounding the Canada-U.S. relationship and the volatility that comes with it.

Another rate hike today?

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. In particular, the trade impacts were caused by the Trump administration's recent steel and aluminum tariffs on Canada and, in response, Ottawa's retaliatory duties on US imports.

Business loans, student loans, lines of credit and home equity lines of credit will cost more to service.

But it is watching what happens in trade tensions with the United States, that it predicts will cut almost 0.7 per cent from economic growth by the end of 2020. The bank had been criticized for a surprise rate hike last September.

However, the negative blow of the trade policies recently put in place are to be largely offset by the positives for Canada from higher oil prices, which are above US$73 per barrel, and the stronger USA economy, the bank said.

Donald Trump and Melania arrive at Theresa May's banquet amid protests
But Brexit champion Nigel Farage predicted there would be a "real clash" on Brexit. Melania Trump's spokesperson did not immediately respond to a request for comment.

"The escalation of trade actions was quite a part of our discussions, but we agreed very early on that it was not going to be the basis for our decision", Poloz told a news conference.

The July projection also incorporates the estimated impact of tariffs on steel and aluminum recently imposed by the United States, as well as the countermeasures enacted by Canada.

The rate increase, by a quarter of a percentage point, took the bank's overnight interest rate to 1.50 percent, still well below the "neutral" rate of 2.5-3.5 percent the bank sees as a sweet spot for monetary policy, where it neither boosts nor restrains growth.

It means consumers with variable rate mortgages or upcoming mortgage renewals will have to pay more.

Economists anticipate several more hikes this year and in 2019.

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