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

Repen: FOI data proves Telkwans being ripped off by ICBC

Former Telkwa mayor received a response from ICBC and says the results don’t look good for residents

Fires still burning near Telegraph Creek

BC Wildfire Service assures residents of a proactive plan heading into wildfire season

Northwest entrepreneurs pitch their plans for cash prizes

ThriveNorth announces 12 finalists in this year’s business challenge

Gas prices spike in northern B.C. ahead of the long weekend

Fuel went up 17 cents overnight in Prince Rupert

Cyclist braking stigma on addiction from coast to coast

Mathew Fee aims at world record for longest distance on BMX bike while sharing his story of recovery

Homeless activists outside Notre Dame demand ‘a roof too’

Wealthy people have donated millions to effort to rebuild cathedral after devastating fire

PHOTOS: Green Party Leader Elizabeth May says ‘I do’ on Earth Day

May and John Kidder got married Monday morning in Victoria

Fire forces 36 people at Vanderhoof care home to evacuate

No one was hurt after the fire at Stuart Nechako Manor

Sri Lanka invokes war-time military powers after nearly 300 killed in Easter bombings

Sri Lanka’s minister of tourism says 39 foreign tourists were killed in the Easter Sunday attacks

B.C. Interior yoga studio raises $2,500 for woman leaving abusive relationship

The 100 Mile House studio held a fundraiser yoga class and accepted donations from members to help the woman

Deadly synthetic drug found in Kamloops that puts users in ‘zombielike’ state

Interior Health warning says substance causes ‘speedy, trippy-like symptoms’ and hallucinations

Trudeau to be portrayed on ‘Simpsons’ episode

Toronto journalist who’s posted videos of himself doing impressions of the PM voiced him for the show

Elizabeth May’s wedding dress a ‘walk through a garden’ on Earth Day

Green Party leader set to get married in Victoria

Bodies of 3 mountain climbers recovered after last week’s Banff avalanche

The men disappeared while attempting to climb the east face of Howse Peak in the Icefields Parkway

Most Read