Bank of Canada raises rate, predicts economic resilience despite trade risks

Image of USDCAD daily chart

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.

"Higher interest rates will be needed to keep inflation on target and that's consistent with our actions today", said Bank of Canada governor Stephen Poloz.

US tariffs on the auto sector's integrated cross-border supply chains would have "large impacts on investment and employment", the Bank of Canada warned Wednesday in its accompanying monetary policy report.

Business loans, student loans, lines of credit and home equity lines of credit will cost more to service.

The decision, a move that prompted some of the big banks to start raising their prime rates later in the day, arrived in the middle of a trade dispute between Canada and the United States that's expected to hurt both economies.

But it is watching what happens in trade tensions with the United States, that it predicts will cut almost 0.7 per cent from economic growth by the end of 2020.

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

With two daughters off school over summer, finding affordable activities is key for Florence van Dijk, especially following news of yet another interest rate hike.

The rates had previously been set at 3.45 per cent. Talks to renegotiate the North American Free Trade Agreement stalled earlier this year, and Canada imposed retaliatory tariffs this month.

It means consumers with variable rate mortgages or upcoming mortgage renewals will have to pay more.

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 maintained a cautious tone while highlighting its data dependency, that said, this was not the "dovish" hike many, including ourselves, expected".

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