Bank of Canada holds interest rate at 1%

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

The Bank of Canada building is pictured in Ottawa on September 6, 2011. The Bank of Canada is defending itself amid questions about its public silence ahead of an interest-rate increase last week that caught many analysts by surprise. File photo by THE CANADIAN PRESS

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.

Andy Blatchford, The Canadian Press

Like us on Facebook and follow us on Twitter.

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

Just Posted

Tofino’s Crystal Cove crowned top family destination for second year in a row

TripAdvisor has announced the recipients of its Travelers’ Choice Best of the Best awards.

COVID-19: Tla-o-qui-aht First Nation asks Tofino businesses for support as emergency funding runs dry

“We need to pay for the work they do. It’s such important work.”

DFO says the five aggrieved B.C First Nations were consulted on fisheries plan

Nuu-chah-nulth First Nations calls response ‘a sham,’ adding DFO never incorporates their views

Three active COVID-19 cases on Vancouver Island

Since July 24, Central island has had five new cases, North one, South none

Canada can lead the way to save sharks from extinction, says fisheries expert

“Combined with fishing extraction numbers, sharks experience huge losses in the environment.”

‘Don’t kill my mom’: Ryan Reynolds calls on young British Columbians to be COVID-smart

‘Deadpool’ celebrity responds to premier’s call for social influence support

Protesters showcase massive old yellow cedar as Port Renfrew area forest blockade continues

9.5-foot-wide yellow cedar measured by Ancient Forest Alliance campaigners in Fairy Creek watershed

Taking dog feces and a jackhammer to neighbourhood dispute costs B.C. man $16,000

‘Pellegrin’s actions were motivated by malice …a vindictive, pointless, dangerous and unlawful act’

Racist stickers at Keremeos pub leaves group uneasy and angry

The ‘OK’ hand gesture is a known hate-symbol

VIDEO: World responds to B.C. girl after pandemic cancels birthday party

Dozens of cards and numerous packages were delivered to six-year-old Charlie Manning

Expected fall peak of COVID-19 in Canada could overwhelm health systems: Tam

National modelling projections released Friday show an expected peak in cases this fall

Hundreds of sea lions to be killed on Columbia River in effort to save endangered fish

Nearly 22,000 comments received during public review were opposed, fewer than 200 were for

Devil’s Hand Poker Run in Campbell River to face RCMP scrutiny

The Campbell River RCMP will be keeping a close eye on the… Continue reading

B.C.’s fuel suppliers to publish prices to provide accountability: minister

Bruce Ralston says move will ensure industry publicly accountable for unexplained prices increases

Most Read