Bank of Canada delivers another hike, key interest rate rises to 1.5%

Stephen Poloz

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.

Thanks to stronger economic data, experts are predicting governor Stephen Poloz to hike the rate from its current level of 1.25 per cent.

"Despite hiking rates today, the Bank of Canada is in no rush to continue pushing rates higher given the uncertainties surrounding trade, lingering concerns about housing and household debt, and renewed belief that there's some labour market slack".

As in April, the projection incorporates an estimate of the impact of trade uncertainty on Canadian investment and exports. This effect is now judged to be larger, given mounting trade tensions. Overall, the Bank still expects average growth of close to 2 per cent over 2018-2020.

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However, the negative blow of the trade policies recently put in place are to be largely offset by the positives for Canada from higher oil prices, which are above US$73 per barrel, and the stronger USA economy, the bank said.

The fourth rate increase since July 2017 comes as Canada grapples with the pressures of rising inflation and solid job growth despite an increasingly hostile USA trade policy that could choke off demand from Canada's largest export market. However, it intends to continue with its gradual, data-dependent approach.

Leading up to the announcement, Poloz was widely expected to raise the interest rate following a run of encouraging economic numbers, including the Bank of Canada's own survey on business sentiment, still-solid job markets and growth in wages. Temporary factors are causing volatility in quarterly growth rates: the Bank projects a pick-up to 2.8 per cent in the second quarter and a moderation to 1.5 per cent in the third.

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