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.

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

Just Posted

Surrey RCMP look for missing man

Tyler Ridout, 36, last seen near Balsam Crescent and 136th Street

Police watchdog investigating death of man in Delta

Independent Investigations Office asking for witnesses to May 29 incident at Tsawwassen ferry terminal

Safe Surrey under fire for ‘sickening’ social media posts accusing RCMP of murder

Mayor Doug McCallum says tweet, Facebook post ‘sent out by unauthorized person’

B.C. government releases designs for new Pattullo Bridge

Project expected to cost $1.377 billion, completed by end of 2023

11 new COVID-19 cases in B.C. as top doc urges caution amid ‘encouraging’ low rates

Dr. Bonnie Henry also announced that two care home outbreaks would be declared over

Facing changes together: Your community, your journalists

We’re asking you to lock arms with us, as we look to better days ahead

Father’s Day Walk Run for prostate cancer will be virtual event this year throughout B.C.

The annual fundraiser for Prostate Cancer Foundation BC has brought in $2.5 million since 1999

Dr. Bonnie Henry announces official ban on overnight kids’ camps this summer

New ban comes after talking with other provincial health officials across the country, Henry says

Senior man in hospital after unprovoked wolf attack near Prince Rupert

Conservation officers are on site looking for the wolf

VIDEO: NASA astronauts blast off into space on SpaceX rocket

Marks NASA’s first human spaceflight launched from U.S. soil in nearly a decade

‘I knew what he wanted’: Kootenay man spends hours in tree as black bear patrols below

Francis Levasseur is no stranger to the outdoors, but a recent run-in with a bear caused quite a scare

B.C.’s police watchdog probing death of Richmond man in alleged shoplifting incident

Independent Investigations Office of B.C. is asking any witnesses to come forward

PHOTOS: U.S. cities brace for increasing unrest over police killing of George Floyd

Minnesota Gov. Tim Walz has fully mobilized the state’s National Guard

Most Read