Bank of Canada raises interest rate for first time in 6 months

The Bank expects the global economy to grow by about 3 ¾ per cent in 2018 and 3 ½ per cent in 2019, in line with the April Monetary Policy Report (MPR). The interest charged on this kind of debt typically goes up when the Bank raises its rate.

Governor Stephen Poloz said trade tensions were the biggest issue on the table.

The fourth rate increase since July 2017 comes as Canada grapples with the pressures of rising inflation and solid job growth despite an increasingly hostile US trade policy that could choke off demand from Canada's largest export market.

Money markets see a almost 70 per cent chance of further Bank of Canada tightening by December.

Looking ahead, the bank predicts Canadian growth will continue to see bigger contributions from exports and business investment, which were both stronger than expected in the first three months of the year.

Scott Hannah says higher interest rates have also helped to cool down the country's real estate markets, helping future homeowners.

"This should be consistent with a more firm pricing for another hike this year", said Alvise Marino, FX strategist at Credit Suisse in NY.

The Bank of Canada raised interest rates on Wednesday as expected and signaled more rate hikes to come, saying that while mounting trade tensions with the United States were a concern, their impact on growth and inflation looked modest so far. Inflation ran at a 2.2-per-cent pace in May, slightly above the Bank's target of 2 per cent. The Bank estimates that underlying wage growth is running at about 2.3 per cent, slower than would be expected in a labour market with no slack.

Canadian government bond prices were mostly lower across a flatter yield curve, with the two-year down 4 cents to yield 1.959 per cent and the 10-year falling 5 cents to yield 2.156 per cent.

"There are worries ahead, growth hasn't been stellar, but the backdrop has been just good enough for the Bank of Canada to nudge rates a quarter point higher".

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