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

Greenwood man dies following head-on collision

The crash kept the highway closed for most of the day Tuesday

Man who pledged to give B.C. hockey team millions charged with fraud

Mike Gould has since repaid $8,000 he allegedly owed Cranbrook restaurant, owner says

Columbia River Treaty to be renegotiated in early 2018

News came in a Tweet from the U.S. Department of State

Site C dam goes ahead, cost estimate now up to $10.7 billion

Premier John Horgan says Christy Clark left him no other choice

Phoenix Racers receive donation

The Heritage Credit Union donated towards some new equipment.

VIDEO: Average Canadian food bill to rise by $348 in 2018

Atlantic Canada and B.C. will see the most increases for consumers

SPCA seizes 74 animals from Barriere property

Constables removed sheep, piglets, chickens and more

Penticton addiction recovery centre plan halted by neighbours

Recovery centre operator said neighbours bought property ‘in haste’

Fernie to have skating by Christmas

Fernie’s new outdoor rink is tentatively set to open for skating on December 20.

Victoria gets approval for supervised consumption site

It is scheduled to open in the spring/summer of 2018 and will be the first permanent facility on Vancouver Island

Home services, rental rates top concerns: B.C. seniors’ watchdog

Premier John Horgan pledges action on rental housing in 2018

‘Game-changing’ B.C.-born technology tests brain vital signs

B.C. neuroscientist describes the tech as ‘the world’s first objective physiological yard stick for brain function’

5-year anniversary of Sandy Hook shooting

When just saying ‘I’m from Newtown’ can be a cross to bear

Disney buying part of 21st Century Fox in $52.4B deal

Disney is buying a large part of the Murdoch family’s 21st Century Fox for about $52.4 billion

Most Read