Economy

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

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

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.

Poloz stressed the bank will continue with its gradual, data-dependent approach as it moves towards its neutral rate, which his team has pegged between 2.5 and 3.5 per cent.

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.

As expected, the Bank of Canada raised its key lending rate on Wednesday, to 1.5 per cent, the fourth rate hike in roughly the past year.

Citing a prudent, data-dependent approach, Poloz hasn't touched the rate since he increased it in January, a move that followed increases a year ago in September and July.

"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.

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. Talks to renegotiate the North American Free Trade Agreement stalled earlier this year, and Canada imposed retaliatory tariffs this month.

Another decision on interest rates is expected in September.

Outside the country, the Bank of Canada has its eye on how widening global trade disputes, including an intensifying battle between the USA and China, will affect the world's economy.

The Bank of Canada is also releasing its quarterly update of projections, which predicts slightly stronger growth in both 2019 and 2020, compared with its outlook in April.

Many economists anticipate several more hikes this year and in 2019.

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



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