Published: Fri, July 13, 2018
Markets | By Otis Pena

Bank of Canada raises rate, predicts economic resilience despite trade risks

Bank of Canada raises rate, predicts economic resilience despite trade risks

The Bank of Canada today increased its target for the overnight rate to 1 ½ per cent.

"Governor Poloz did note the risk of a far greater shock to the economy should we see more tariffs (autos in particular) but suggested that they "can't make policy based on hypotheticals".

With two daughters off school over summer, finding affordable activities is key for Florence van Dijk, especially following news of yet another interest rate hike.

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.

CPI and the Bank's core measures of inflation remain near 2 per cent, consistent with an economy operating close to capacity.

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The Bank of Canada also has its eye on how widening global trade disputes, including an intensifying battle between the USA and China, will affect the world's economy. 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. It warns that "escalating trade tensions pose considerable risks to the outlook" at the global level.

Poloz also signaled he was comfortable with how financial markets were interpreting the central bank's message, noting the hike was "highly anticipated".

OTTAWA-The Bank of Canada on Wednesday raised its benchmark interest rate by a quarter of a percentage point to 1.50% in response to solid economic data and expectations that exports and business investment will continue to grow.

It means consumers with variable rate mortgages or upcoming mortgage renewals will have to pay more. Inflation ran at a 2.2-per-cent pace in May, slightly above the Bank's target of 2 per cent.

The bank, however, noted in its report that despite "healthy" labour market conditions, employment growth and average hours worked have slowed down compared to last year's surge.

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