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

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 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.

Just Posted

Innisfail RCMP arrests two

Suspects attempted to flee but their vehicle got stuck in the snow

West coast actor brings compelling pioneer tale to the City next month

Cougar Annie Tales runs April 25th in the Snell Auditorium,

UPDATE: Shane McPhee sentenced to six years in prison

A Red Deer man was sentenced in the killing of William Blaine Baker

Help City council determine policing priorities

A phone survey runs from March 19th to April 6th

Red Deer RCMP arrest man after collisions with building, cars and police vehicle

Jesse James Leckner was remanded to appear in court March 19th

Ottawa proposes restricted pot labels, packages

Packaging will include red stop sign with marijuana leaf and ‘THC’

Alberta budget plans for Trans Mountain expansion

Finance Minister Joe Ceci says expected revenues will be factored into budget forecasts

Proposed gun bill attacked by gun owners and shooting victims

The federal government tabled the bill today in order to tighten the sale and tracking of firearms

Sea lion with rope wrapped around neck saved by Vancouver Aquarium

Steller sea lions are a species of special concern and some populations are endangered in parts of Alaska

50-million-year-old fossil found in B.C. town makes history

Paleontologist Dr. Bruce Archibald says Princeton, B.C. is becoming famous for giving up rare fossils

Not even Ellen DeGeneres can get Virtue, Moir to say they’re more than friends

Tessa Virtue, Scott Moir appeared on “The Ellen DeGeneres Show” Tuesday

New Liberal bill would tighten controls on sale, licensing of firearms in Canada

Measures are intended to assist police in investigating gun trafficking and other crimes

Wetaskiwin-area burglars gain entry through patio doors, steal large clock

Wetaskiwin RCMP respond to break/enter and theft in County of Wetaskiwin

Ex-French president Sarkozy in custody on Gadhafi claims

Former French President Nicolas Sarkozy was placed in custody as part of an investigation that he received millions of euros in illegal financing

Most Read