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In a widely anticipated move, the Bank of Canada (BoC) raised its trend-setting interest rate by a quarter of a percentage point to 1.75 per cent on Wednesday. It was the fifth time that BoC governor Stephen Poloz lifted rates since mid-2017.

Ever since the previous rate increase in July, many economists had been predicting one more hike this year, likely to come in October. And the move appeared all but sealed after the signing of the new United States Mexico-Canada Agreement (USMCA), which removed considerable uncertainty that analysts worried had been weighing on Canada’s growth.

Central banks generally raise interest rates to keep the economy from overheating and generating excessive inflation. That’s because higher borrowing costs tend to moderate economic activity.

Canada’s central bank has been slowly raising rates from historic lows after the end of the 2014-2016 recession in Alberta and today said interest rates have further up to go. But in a departure from previous statements, the bank dropped the word “gradual” when describing the pace of future hikes.

Financial markets will interpret the omission as a signal that the BoC is leaving the door open for consecutive rate increases, with one possibly happening as early as December, Avery Shenfeld, chief economist at CIBC Capital Markets said in a note to clients shortly after the announcements.


The BoC also said its key interest rate “will need to rise to a neutral stance” to keep inflation close to target. The central bank has estimated the neutral rate as near three per cent, Shenfeld noted.

“That’s more hawkish than we see as the likely outcome, as we’re not as optimistic on the economy’s ability to weather that dose of tightening,” he added.

The BoC said Canadians have been making spending adjustments in response to earlier rate hikes and stricter mortgage policies — and credit growth continues to moderate.

“As a result, household vulnerabilities are edging lower in a number of respects, although they remain elevated,” the statement said.

The bank still expects consumer spending to continue expanding at a “healthy pace,” thanks in large part to the steady rise of incomes and high consumer confidence.

Until the hike Wednesday, the interest rate hadn’t been above 1.5 per cent since December 2008. At that time, during the financial crisis, the bank made a three-quarter-point cut to the benchmark, bringing it to 1.5 per cent from 2.25 per cent. The bank left the rate unchanged in September and senior deputy governor Carolyn Wilkins later said the unknown consequences of the North American trade talks — as well as the tit-for-tat tariff dispute — were front and centre in the decision.

For more information or to view the entire article please click here https://globalnews.ca/news/4590070/bank-of-canada-interest-rate-announcement-2/?fbclid=IwAR38M2SVBafPlDl3MsvzAKwV49O5y4i7aWq5f3GMg9ltXYjJDqqGf7G2H-U