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

Mount Eneas fire grows to 1,374 hectares

Regional District Okanagan-Similkameen issues evac alerts for properties in Area F.

Update: Placer Mountain fire continues to grow

There are five fires in high elevation burning near Keremeos

Okanagan Wildfires: The latest on wildfires and evacuations

A Friday morning look at the major wildfires impact the Okanagan and Similkameen.

Murder mystery staged on steam train

Summerland Singers and Players perform classic tale on the rails on July 21

Cooler temps today, but no rain in forecast until August

Environment Canada does not have good news when it comes to fighting fires in the Central Okanagan.

BC Wildfire update on Okanagan blazes

Watch the media briefing on the current fire situation in the Okanagan.

Wildfire near Vernon out as new Sugar Lake fire sparked

Vernon fire snuffed out, but now a new blaze has been discovered near Cherryville

Summerland winery saved from wildfire

Okanagan Crush Pad is thanking firefighters for saving the Summerland vineyard

Public invited to owl release party Sunday

Three owls suspected of having ingested Warfarin to be released Sunday

What’s happening this weekend

Follow Social Squad memeber Matthew Abrey to find out what’s happeing this weekend

Fire on Kelowna’s Knox Mountain quickly knocked down

City fire crews responded to report of smoke at the top of the hill Friday afternoon.

RCMP help to save goats from wildfire

The fast-approaching wildfire, sparked Thursday, forced the evacuation of five homes

Update: Law Creek wildfire evacuation alert partially rescinded

A blaze in West Kelowna still has 129 properties on an evacuation alert

Okanagan Mountain Park wildfire evacuation alert lifted

An evacuation alert remains in effect for those on Lakeshore Road

Most Read