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

Surrey business groups dig in heels on LRT

Mayor-elect Doug McCallum and his coalition aim to cancel LRT in favour of extending SkyTrain

New faces on Surrey council: Who they are and how they got here

The council includes seven of eight candidates who ran with Doug McCallum-led Safe Surrey Coalition

UPDATE: Missing Surrey girl, 15, located

Surrey RCMP sought help to locate Hailey McClelland

Surrey’s mayor-elect McCallum has big promises to keep

From estimated 337, 289 eligible voters in Surrey, 109,791 votes were cast for 32.5 per cent turnout

Dancing zombies expected in droves at Surrey’s ‘Thrill the World’ event

Michael Jackson’s iconic video inspires group-dance gatherings around the globe

B.C. sailor surprised by humpback whale playing under her boat

Jodi Klahm-Kozicki said the experience was ‘magical’ near Denman Island

Ovechkin has 4 points as Caps rough up Canucks 5-2

WATCH: Defending champs pick up impressive win in Vancouver

Vancouver mayoral hopefuly admits defeat, congratulates winner Kennedy Stewart

Ken Sim of the Non-Partisan Association apologized for the time it took to acknowledge Stewart won

Mental fitness questioned of man charged in Chilliwack River Valley shooting

Peter Kampos told his lawyer ‘his dreams are being stolen and turned into drugs’ at Surrey Pre-trial

Fraser Valley mom stuck in Africa over adoption delay

Kim and Clark Moran have been waiting four weeks to bring son home

B.C. government moves to tighten resource industry regulations

New superintendent will oversee engineers, biologists, foresters

Election watchdog seeks digitally savvy specialists to zero in on threats

Move follows troublesome evidence of online Russian interference in the 2016 U.S. election

Most Read