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Bank of Canada Hikes Key Interest Rate

Written by The Content Team

Published on July 12, 2018

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The Bank of Canada bumped up its benchmark interest rate a quarter point on Wednesday even as trade-related speed bumps such as NAFTA negotiations, tariffs and trade-war fears persist.

The increase, which brings the rate to 1.5 per cent from 1.25 per cent, was largely anticipated after recent strong economic data.

Trade issues featured prominently in the Bank of Canada's statement on Wednesday.

"The possibility of more trade protectionism is the most important threat to global prospects," it said, adding that as a result of growing trade tensions, the impact of trade uncertainty on Canadian investment and exports is "now judged to be larger" than it previously estimated.

While the Bank of Canada acknowledged that there will be "difficult adjustments" for some industries and their workers as a result of the U.S. steel and aluminum tariffs and Canada's countermeasures, "the effect of these measures on Canadian growth and inflation is expected to be modest."

The latest hike is the first since January and comes one year after Canada's central bank moved off the sidelines to slowly start pushing its key lending rate higher. After nearly seven years without any increases, the Bank of Canada last July raised its target for the overnight rate — also known as the policy interest rate or benchmark rate — to 0.75 per cent from 0.50 per cent. It followed that with two more quarter-point increases, in September and January.

Going forward, the Bank of Canada said on Wednesday that it expects "higher interest rates will be warranted to keep inflation near target and will continue to take a gradual approach, guided by incoming data."

Last Friday, Statistics Canada reported better-than-expected jobs numbers, including a gain of nearly 32,000 jobs in June. And while the unemployment rate increased to 6 per cent from 5.8 per cent, it was thanks to more people searching for work.

For more on interest rates, check out:

Stocks, Bonds & Margin Accounts: What Higher Interest Rates Mean for Investors

5 Takeaways on Interest Rates & Foreign Exchange

 

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