Bank of Canada raises overnight rate target to 1 ½ per cent

Galtero Lara
Julio 13, 2018

The Bank of Canada has increased its key interest rate by a quarter-point to 1.5 per cent in a move that was widely expected.

After the fourth rate hike in the past year, it's the first time the rate has been this high since December 2008, and the central bank has signalled the upward trend is likely to continue. At the rate decision, BoC officials said they expect "higher interest rates will be warranted to keep inflation near target", offering some insight on the stance of the bank heading into future rate decisions.

CPI and the Bank's core measures of inflation remain near 2 per cent, consistent with an economy operating close to capacity.

The Credit Counselling Society's president and CEO says a rate hike is positive for those with funds in a savings account, particularly seniors who depend on interest income to help cover their expenses.

The July projection also incorporates the estimated impact of tariffs on steel and aluminum recently imposed by the United States, as well as the countermeasures enacted by Canada.

In addition to tariffs, Canadian businesses must also contend with the uncertainty surrounding the stalled talks on NAFTA's renegotiation.

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Outside the country, the Bank of Canada has its eye on how widening global trade disputes, including an intensifying battle between the USA and China, will affect the world's economy.

Even with the trade issues, the Bank of Canada is now predicting slightly stronger growth for Canada over the next couple of years, according to updated projections it released Wednesday in its quarterly monetary policy report.

So what does the rate hike mean for Canadians?

"My experience having come from Ireland five years ago is I've experienced recession and I've experienced interest hikes before so I'm cautious at this stage", said van Dijk.

Consumer price inflation is expected to edge up to 2.5 per cent before returning to around 2 per cent by the second half of 2019.

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