Published: Fri, July 13, 2018
Business | By Kate Woods

Bank of Canada delivers another hike, key interest rate rises to 1.5%

Bank of Canada delivers another hike, key interest rate rises to 1.5%

It was the fourth rate increase in the span of 12 months.

The central bank said it expects the Canadian economy to expand by 2 per cent per year on average between 2018 and 2020, noting that recently implemented tariffs on steel and aluminium will likely have only "modest" effects on growth and inflation.

However Poloz said the bank can not make policy on the basis of hypothetical scenarios.

"The US economy is proving stronger than expected, reinforcing market expectations of higher policy rates and pushing up the US dollar".

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Another hike this week would come with Canada facing a number of trade-related uncertainties, including NAFTA talks, USA steel and aluminum tariffs and the threat of more duties on the economically critical automotive sector.

With the economy operating close to full capacity, waiting too long to start raising the benchmark runs the risk the central bank would have to introduce increases more aggressively, Caranci said.

Aside from the USA trade threat, there isn't much to keep the Bank of Canada on hold, added Brett House, deputy chief economist for Scotiabank Economics. "Temporary factors are causing volatility in quarterly growth rates: the bank projects a pick-up to 2.8% in the second quarter and a moderation to 1.5% in the third". It warns that "escalating trade tensions pose considerable risks to the outlook" at the global level.

It expects real gross domestic product to grow 2.2 per cent in 2019, up from its April call of 2.1 per cent, and by 1.9 per cent in 2020, compared with its previous prediction of 1.8 per cent.

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So what does the rate hike mean for Canadians?

Many economists anticipate several more hikes this year and in 2019. The increase also comes as the Bank looks to fight rising inflation which has risen above its 2 per cent target.

The Bank of Canada raised the key interest rate a quarter point to 1.5 per cent prompting some of the big banks to increase prime lending rates.

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