Bank of Canada raises overnight rate target to 1 ½ per cent

Bank of Canada raises overnight rate target to 1 ½ per cent

University of Winnipeg economics professor Phil Cyrenne said the trade dispute between Canada and the U.S.is something the bank will be watching closely moving forward. It was Poloz's fourth hike over the last 12 months and marked the first time the rate has been this high since December 2008.

USA 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.

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.

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.

"At a quarter point it's not going to change a lot right now, but the Bank of Canada does anticipate to have to continue to raise rates in the future to keep inflation in check, so that's something to be mindful of", said Philip Herner, financial advisor with Assante Capital Management Ltd. Temporary factors are causing volatility in quarterly growth rates: the Bank projects a pick-up to 2.8 per cent in the second quarter and a moderation to 1.5 per cent in the third.


The bank said US steel and aluminum tariffs imposed in June and retaliatory countermeasures by Canada in July would trim exports, imports and economic growth, and boost inflation, but strong global demand and higher commodity prices were offsetting the tariff headwind.

Another decision on interest rates is expected in September.

It was reasonable to think at the beginning of the year that the unknowns surrounding NAFTA talks could pause business investment and lead to a decline in activity, he said.

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.

"The Bank maintained a cautious tone while highlighting its data dependency, that said, this was not the "dovish" hike many, including ourselves, expected".

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