ibusinesslines.com
ibusinesslines.com July 20, 2018


Bank of Canada hikes rates, shrugging of trade tensions

13 July 2018, 12:09 | Kelvin Horton

Bank Of Canada Raises Key Lending Rate To 1.5%. Here's What That Means For You

Image of Bank of Canada calendar

The central bank's rate decision arrives as Canada faces significant trade-related uncertainties, including stalled NAFTA talks, USA steel and aluminum tariffs and the threat of more duties on the automotive sector.

Analysts at Rabobank explained that the Bank of Canada raised the policy rate 25bp to 1.50% as was widely expected.

The Bank of Canada today increased its target for the overnight rate to 1 ½ per cent. In particular, the trade impacts were caused by the Trump administration's recent steel and aluminum tariffs on Canada and, in response, Ottawa's retaliatory duties on US imports. The tariff fight, the bank estimated, will shave almost 0.7 per cent from Canada's economic growth by the end of 2020.

With the economy operating close to full capacity, waiting too long to start raising the benchmark runs the risk the central bank would have to introduce increases more aggressively, Caranci said.

With two daughters off school over summer, finding affordable activities is key for Florence van Dijk, especially following news of yet another interest rate hike.

Canadian businesses must also contend with the uncertainty surrounding the hard renegotiation of the North American Free Trade Agreement, for which talks have stalled.


The rates had previously been set at 3.45 per cent.

It was reasonable to think at the beginning of the year that the unknowns surrounding NAFTA talks could pause business investment and lead to a decline in activity, he said.

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.

Poloz also signaled he was comfortable with how financial markets were interpreting the central bank's message, noting the hike was "highly anticipated".

It means consumers with variable rate mortgages or upcoming mortgage renewals will have to pay more.

The Royal Bank of Canada said Wednesday it will increase its prime rate by a quarter of a percentage point to 3.70 per cent, effective Thursday.



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