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

Friday, 13 Jul, 2018

However, the central bank said it would take a gradual approach to future rate increases amid mounting tensions over trade with the USA, among other uncertainties.

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

Undaunted by expanding trade risks, the Bank of Canada governor Stephen Poloz raised the interest rate Wednesday and signalled the economy's resilience is keeping him on a hiking trajectory.

But even with such unknowns, TD chief economist Beata Caranci said she expects Poloz to work with the positive data he has in front of him.

The bank's relatively sanguine view of the trade risk boosted the Canadian dollar to its strongest in almost four weeks, and economists said they expected the central bank to hike again by year end.

"Canada's economy continues to operate close to its capacity and the composition of growth is shifting", said the BOC.

"The escalation of trade actions was quite a part of our discussions, but we agreed very early on that it was not going to be the basis for our decision", Poloz told a news conference.

The rates had previously been set at 3.45 per cent.

The July projection also incorporates the estimated impact of tariffs on steel and aluminum recently imposed by the United States, as well as the countermeasures enacted by Canada.

Governing Council expects that higher interest rates will be warranted to keep inflation near target and will continue to take a gradual approach, guided by incoming data.

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.

Economists anticipate several more hikes this year and in 2019.

Leading up to the announcement, Poloz was widely expected to raise the interest rate following a run of encouraging economic numbers, including the Bank of Canada's own survey on business sentiment, still-solid job markets and growth in wages.

So what does the rate hike mean for Canadians?