Sunday, 22 July, 2018

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

THE CANADIAN PRESS  Sean Kilpatrick THE CANADIAN PRESS Sean Kilpatrick
Priscilla Morrison | 11 July, 2018, 22:59

Governor Stephen Poloz said that while it was not easy for policymakers to set aside "all the talk" about trade, the bank hiked rates amid increasing confidence in its outlook, with Canada's economy firing on all cylinders despite the tensions. -Canada trade dispute would figure prominently in the bank's decision-making process for today's rate announcement. Household spending is being dampened by higher interest rates and tighter mortgage lending guidelines.

The Bank said Canada's economy is operating "close to capacity", implying that it expects to see inflation rise in the future.

As in April, the projection incorporates an estimate of the impact of trade uncertainty on Canadian investment and exports.

"Although there will be hard adjustments for some industries and their workers, the effect of these measures on Canadian growth and inflation is expected to be modest", the bank said in a statement. This effect is now judged to be larger, given mounting trade tensions.

More news: How Three Lions can reach the World Cup final

"This U.S. dollar move offsets, and even more so, the somewhat hawkish BoC hike", said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in NY.

Economists anticipate several more hikes this year and in 2019.

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.

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. It also said underlying wage growth has been weaker than what would normally be expected in a tightened job market. Inflation ran at a 2.2-per-cent pace in May, slightly above the Bank's target of 2 per cent. CPI inflation is expected to edge up further to about 2.5 per cent before settling back to 2 per cent by the second half of 2019.

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