Bank of Canada holds rate but sends fresh signals that hikes are on the horizon

OTTAWA — The Bank of Canada stuck with its trend-setting interest rate Wednesday — but it offered fresh, yet cautious, warnings to Canadians that increases are likely on the way.

The central bank has now left the rate locked at one per cent for two straight policy announcements after the strengthening economy prompted it to raise it twice in the summer.

In announcing the decision, the bank pointed to several recent positives that could support higher rates in the coming months. They included encouraging job and wage growth, sturdy business investment and the resilience of consumer spending despite higher borrowing costs and Canadians’ heavy debt loads.

On top of that, there’s increasing evidence in the economic data that the benefits from government infrastructure investments have begun to work their way through the economy, the bank said.

But on the other hand, the bank noted exports have slipped more than expected in recent months after a powerful start to the year, although it continues to predict trade growth to pick up due to rising foreign demand.

It also said the international outlook continues to face considerable uncertainty mostly because of geopolitical- and trade-related factors.

“While higher interest rates will likely be required over time, (the bank’s) governing council will continue to be cautious,” the bank said in a statement Wednesday that accompanied its decision.

It will be ”guided by incoming data in assessing the economy’s sensitivity to interest rates, the evolution of economic capacity and the dynamics of both wage growth and inflation.”

The bank said inflation, a key factor in its rate decisions, has been slightly higher than anticipated and could stay that way in the short term because of temporary factors like stronger gasoline prices. Core inflation, which measures underlying inflation by omitting volatile items like gas, has continued to inch upwards.

Governor Stephen Poloz raised rates in July and September in response to an impressive economic run that began in late 2016. The hikes took back the two rate cuts he introduced in 2015 to help cushion, and stimulate, the economy from the collapse in oil prices.

From here, the bank must assess how to proceed with the interest rate while taking into consideration that Canadian households have amassed high levels of debt and the presence of still-hot housing markets in areas like Toronto and Vancouver.

Last month, the Bank of Canada flagged the steady climb of household debt and these real estate markets as the financial system’s top vulnerabilities.

The bank’s statement Wednesday said recent economic indicators have been in line with its October forecast, which projected a moderation following the country’s exceptional growth in the first half of 2017.

The document contained a few differences compared with the statement that accompanied its last rate announcement in October.

This time, the bank once again noted the unknowns over the future of trade policy, however, it did not specifically mention the ongoing renegotiation of the North American Free Trade Agreement.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Red Deer County has three new confirmed COVID-19 cases

The provincial government has confirmed three new COVID-19 cases in Red Deer… Continue reading

Rimbey textile artists creating hand-made masks

Group has also been helped out by a local business

People ‘can count on’ Alberta RCMP amid COVID-19 pandemic, says deputy commissioner

Albertans “can count on the RCMP every day” during the COVID-19 pandemic,… Continue reading

Central Albertans win big in 2020 STARS Lottery

A few central Albertans won big in the 2020 STARS lottery. Jeff… Continue reading

107 new cases of COVID-19 in Alberta, 5 additional deaths

More than 1,000 cases in Alberta total

WATCH: Red Deer emergency call centre hours change starting next week

Hours at the City of Red Deer’s COVID-19 emergency call centre will… Continue reading

Alberta Health Services provides COVID-19 prevention tips

Alberta Health Services has a number of recommendations for people amid the… Continue reading

Alberta government website has latest COVID-19 statistics

Red Deer Advocate readers can stay up to date on the COVID-19… Continue reading

Taste of home schooling generating new interest among parents

Selena Valencia is on the fence when it comes to home-schooling her… Continue reading

‘The Charter still applies’: Canadians urged to monitor civil liberties during pandemic

Civil rights advocates say citizens need to be vigilant about how authorities are using new powers

Essential workers talk about how COVID-19 affects them

Health-care workers, grocery store staff, transit drivers and food delivery workers are… Continue reading

Sister of woman found dead last month is accused of first-degree murder

/COQUITLAM, B.C. — A first-degree murder charge has been laid against the… Continue reading

Trudeau announces more financial help for country’s most vulnerable

$40 million will go to Women and Gender Equality Canada

Most Read