Wednesday, 21 November, 2018

Bank of Canada hikes rate, what it means for Canadians

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

This is the second rate increase of the year, though many economists think the Bank of Canada will be on hold for the rest of 2018 because of the trade war with the US.

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

In addition, "household spending is being dampened by higher interest rates and tighter mortgage lending guidelines".

The increase will raise the cost of borrowing for customers with loans linked to the prime rate such as variable rate mortgages and lines of credit.

The bank's relatively sanguine view of the trade risk boosted the Canadian dollar to its strongest in almost four weeks, and economists said they expected the central bank to hike again by year end.

Poloz recently said the impacts of the U.S.

More news: Champions League is target for Manchester City signing Mahrez

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.

"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.

Canadian businesses must also contend with the uncertainty surrounding the hard renegotiation of the North American Free Trade Agreement, for which talks have stalled. The bank had been criticized for a surprise rate hike last September.

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.

Even with the trade issues, the Bank of Canada is predicting slightly stronger growth for Canada over the next couple of years, according to updated projections released Wednesday in its quarterly monetary policy report.

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

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