Bank of Canada Governor Stephen Poloz speaks at a press conference after releasing the June issue of the Financial System Review in Ottawa on Thursday, June 7, 2018. (THE CANADIAN PRESS/Patrick Doyle)

Bank of Canada hikes interest rate to 1.75%

The central bank’s decision comes as the economy stays strong, trade uncertainty recedes

The Bank of Canada is raising its trend-setting interest rate as the resilient economy hums along and a big source of trade uncertainty is finally out of the way.

In making the decision Wednesday, the central bank also sent a signal that suggests it will take a more aggressive approach to future hikes than previously expected.

The central bank delivered a quarter-point rate increase for the fifth time since the summer of 2017 — and first time since July — to bring the benchmark to 1.75 per cent. The rate is now higher than it’s been in about a decade.

It was the central bank’s first policy decision since Canada agreed with the United States and Mexico earlier this month on an updated North American free trade deal.

“The new U.S.-Mexico-Canada Agreement (USMCA) will reduce trade policy uncertainty in North America, which has been an important curb on business confidence and investment,” the bank said in a statement Wednesday.

“The Canadian economy continues to operate close to its potential and the composition of growth is more balanced.”

READ MORE: Higher interest rates to hit younger, middle-income households

The removal of one of the trade-uncertainty shackles also coincided with a notable change in the wording of the statement Wednesday, compared with other recent news releases from the bank.

This time around, the bank omitted the word “gradual” from its explanation on how it will approach future rate increases, a change that could lead some observers to anticipate future hikes will come faster than the market had previously expected.

Looking ahead, the bank indicated more increases will be needed to bring the rate to a “neutral stance” in order to keep inflation from rising too far above the two per cent mid-point of its target range. Governor Stephen Poloz’s team has pegged the neutral rate at between 2.5 and 3.5 per cent, so several more increases are likely on the way.

The statement, however, noted the pace of future increases will continue to be guided by how well households are digesting the higher interest rates, given their high levels of debt.

So far, the bank said Canadians have been making spending adjustments in response to earlier rate hikes and stricter mortgage policies — and credit growth continues to moderate.

“As a result, household vulnerabilities are edging lower in a number of respects, although they remain elevated,” the statement said.

The bank still expects consumer spending to continue expanding at a “healthy pace,” thanks in large part to the steady rise of incomes and high consumer confidence.

Until the hike Wednesday, the interest rate hadn’t been above 1.5 per cent since December 2008. At that time, during the financial crisis, the bank made a three-quarter-point cut to the benchmark, bringing it to 1.5 per cent from 2.25 per cent.

The Canadian Press

Like us on Facebook and follow us on Twitter.

Just Posted

Chilliwack RCMP find chemicals and cannabis extract in illicit lab

Marijuana may be legal but altering it using chemicals violates the Cannabis Act

Chilliwack RCMP seek suspects in rash of poppy donation box thefts

Incidents at four different locations in Sardis in the days leading up to Remembrance Day

German-born British Columbian warns against a ‘yes’ vote on proportional representation

Agassiz realtor Freddy Marks says PR in his home country shows party elites can never be voted out

Train ride at Minter store not part of this year’s festive fun

Tough decision made to stop seasonal train in its tracks after injury suffered by Brian Minter

Players Guild challenges Chilliwack residents to solve classic Agatha Christie whodunit mystery

The Chilliwack Players Guild is performing Murder on the Nile from Nov. 22 to Dec. 2

Winter weather hits parts of Canada

As some parts of the country brace for cold, parts of B.C. remain warmer than 10 C

Don’t sign USMCA until LGBTQ language excised, U.S. lawmakers urge Trump

The trade agreement, forged after 13 months of tense negotiations between Canada and the U.S. is scheduled for Nov. 30

US official: US intel says prince ordered Khashoggi killing

Vice-President Mike Pence told reporters that ‘the murder of Jamal Khashoggi was an atrocity.’

Canada’s health system commendable overall but barriers to care remain: UN

The United Nations says Canada’s health care system is “commendable” overall but vulnerable groups still face barriers to quality care.

Unique technology gives children with special needs more independent play

UVic’s CanAssist refined seven prototypes aided by $1.5M government contribution

Kelly Ellard’s boyfriend has statutory release revoked

Darwin Duane Dorozan had several parole infractions that found him ‘unmanageable’

New chair of Metro Vancouver board is Burnaby councillor

The 40-person board is made up of elected officials from 21 cities and one First Nation

Doctor’s note shouldn’t be required to prove you’re sick: poll

70% of Canadians oppose allowing employers to make you get a sick note

Most Read