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

Okanagan residents can win ride in army vehicle

A social media campaign offers the chance to win a ride in the Dragoons armoured vehicle

Reel Reviews: War from both sides of the desk

We say, “Forgive these films their faults and they will be entertaining enough.”

Residents should keep air intakes clear of snow

Silver Star Fire Department is encouraging residens to keep their air intakes clear after snowfall

Provincial program offers assistance to agricultural producers

AgriStability Enhancement Program benefits agricultural producers who saw an income decline in 2017

‘Backs game cancelled due to weather

Match-up against Merritt called off as heavy snow creates treacherous roads

PHOTOS: Icing the competition

Skate Canada 2018 Okanagan Regional Championships skated through Vernon this weekend

Calgary man dies in Mexico following sudden illness

Troy Black was with his wife, Lindsay, in Puerto Vallarta when he began vomiting blood on Thursday

How to keep local news visible in your Facebook feed

Facebook has changed the news feed to emphasize personal connections. You might see less news.

Virtue and Moir break their own world record

Virtue and Moir break short dance record to sit first in ice dance at Olympics

Trump gets angry about election meddling, but not at Russia

‘Weirdest thing’: Trump expresses anger, but not over Russian election-meddling

New doping charge could hurt Russia’s chance at reinstatement

Russia could lose its chance to be reinstated before the end of the Winter Olympics because of a doping charge against curling bronze medallist Alexander Krushelnitsky.

Okanagan Hockey Academy alum nets first Olympic goal in semifinal win

Canada will face the U.S. inwomen’s hockey gold medal final of the 2018 PyeongChang Winter Olympics

‘Black Panther’ blows away box office with $192M weekend

In estimates Sunday, Disney predicted a four-day holiday weekend of $218 million domestically and a global debut of $361 million.

Coquihalla lane closed due to crash

A crash has snarled traffic on the Coquihalla

Most Read