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

Town of Sylvan Lake passes 2019 tax rate, estimates education tax

Sylvan Lake and all municipalities have been left without an education tax from the Province

Town of Sylvan Lake to replace old water meters to streamline monthly billing

Town Council also approved replacing old water meters to the current technology

Drivers reminded impairment and driving don’t mix

National Road Safety Week May 14 to 20

Former Sylvan Lake resident launches latest book

Talena Winters will launch her book at the Sylvan Lake Municipal Library on Friday

Sylvan Lake bans use of charcoal barbecues in Town parks

Visitors and residents picnicking in Sylvan Lake are asked to leave the charcoal barbecues at home

Grumpy Cat, who entertained millions online, dies at age 7

Grumpy Cat, actually named Tardar Sauce, died of complications from a urinary tract infection

Canada’s parole officers say correctional system has reached breaking point

About half of Canada’s federal parole officers work inside penitentiaries and correctional institutions

Speed, alcohol considered factors in deadly Calgary crash: police

Two female passengers in the Corolla, aged 31 and 65, died at the scene

Montreal researchers create audible hockey puck for visually impaired players

Three years ago, Gilles Ouellet came up with the idea for a puck that makes a continuous sound

‘What’s your number?’: Advocates urge Canadians to check their blood pressure

May 17 is World Hypertension Day, marked to spread awareness on the risks of high blood pressure

National Impaired Driving Enforcement Day is May 18

Alberta RCMP participates in Canada Road Safety Week during Victoria Day long weekend

Alberta issues fire ban in northern part of province due to wildfire threat

The government says the decision was made due to the growing threat of wildfires

Fashion Fridays: White sneakers

Kim XO, helps to keep you looking good on Fashion Fridays on the Black Press Media Network

Southern Alberta city pulls plug on $13-million solar power project

Goal was to test whether the technology was a feasible way to make steam at city-owned power plant

Most Read