Bank Of Canada Raises Interest Rate To Highest Level In 9 Years

Bank Of Canada Raises Interest Rate To Highest Level In 9 Years

Holders of variable-rate mortgages can expect to see their mortgage rates rise immediately, as happened last summer when the Bank of Canada last hiked interest rates.

The rate increase "was a rear view mirror move, but the Bank of Canada hints that the view out the front window isn't quite as sunny", said Avery Shenfeld, chief economist at CIBC World Markets.

Given Canada sends over three quarters of exports south of the border, its economy could be hit if Washington scraps the trade agreement which Trump has repeatedly blamed for American job losses and big trade deficits for his country.

Although domestic inflation is expected to average 1.9 percent this year, slightly below the Bank of Canada's 2 percent target, some analysts said it was more likely the global economy would gather momentum this year and push world-wide inflation higher than now anticipated. The Bank Rate is correspondingly 1 1/2 per cent and the deposit rate is 1 per cent.

As for trade, the central bank said the Nafta risk would hinder Canadian exporters' ability to benefit from an improving global outlook.

The Bank does not see rates rising again anytime soon, that is unless there are more positive surprises, which is not likely.

A recent IPSOS poll has shown Canadian households are perhaps more indebted now than ever, with an alarming minority of Canadians now living paycheque to paycheque.

Canada is now renegotiating the North American Free Trade Agreement (Nafta) with the United States and Mexico. The Bank Rate is correspondingly 1.5 per cent and the deposit rate is 1 per cent.

There are also questions about the economy's sensitivity to interest rate increases and whether its potential growth could be accelerating.

The bank expects inflation to remain around 2 per cent in the months ahead.

Traders who invest in a financial instrument known as an overnight index swap reckon there's a better than 90 per cent chance of a rate hike on Wednesday. With Wednesday's rate rise, the Bank of Canada became the first central bank in the Group of Seven to raise rates in 2018.

In Canada, real GDP growth is expected to slow to 2.2 per cent in 2018 and 1.6 per cent in 2019, following an estimated 3.0 per cent in 2017.

In particular has been the key measures associated with capacity tightness adding confirmation on the need to continue to normalize policy settings. That is an increase of 0.5 percentage points compared to its October projection. Further, the central bank said it is monitoring the extent to which stronger demand and investment are boosting the level of potential gross domestic product, or the amount of growth that can unfold before inflationary pressures are triggered. In this respect, capital investment, firm creation, labour force participation, and hours worked are all showing promising signs.



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