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

Okanagan-Shuswap weather: mix of sun and cloud, chance of showers

Environment Canada is calling for a sunny weekend across the Okanagan

435 insurance claims from Okanagan tree fruit growers so far this season

The Ministry of Agriculture is assessing the rain damage in the Okanagan

Kelowna hockey seasons return in 6 weeks

The Kelowna Chiefs are the latest to release their upcoming schedule

WWII hero draws huge crowd in Kelowna

Around 1,000 people came out to hear the story of Marthe Cohn, the heroic Jewish French spy

$1.4 million Rowcliffe Park development in Kelowna complete

The first phase of the park was completed in 2017

When walls talk

Vernon murals see generation II through new augmented reality app

Community of Oliver active in policing work

Citizens on Patrol, Speed Watch more active than elsewhere in the South Okanagan Similkameen

Justin Trudeau’s carbon footprint revealed in ranking of world leaders

Travel company ranks 15 world leaders’ foreign flight CO2 emissions

B.C. First Nation’s group using ads in Texas targeting company for fuel spill

The Heiltsuk Tribal Council has called out Kirby Corporation for the Nathan E. Stewart oil spill

Trudeau announces $79M investment for 118 more public transit buses across B.C.

Contributions from municipal to federal level to fund more buses in a bid to cut commutes

B.C. woman wins record $2.1 million on casino slot machine

‘That night was so surreal … I wasn’t able to sleep or eat for the first two days,’ she said

Arrest made in vandalism of the former home of man charged with South Okanagan murders

RCMP confirmed one person has been arrested in relation to the alleged vandalism

Respected wildlife artist in the Okanagan dies

According to a post by his family, Terry Isaac died on July 16

After B.C. dad’s death, Technical Safety BC wants changes to trampoline park rules

Jay Greenwood, 46, did ‘a series of acrobatic manoeuvres prior to a fall that caused serious injury and cardiac arrest’

Most Read