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.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Hedley man advertises bounty on rats

One rat tail will net five dollars

Ninety-seven distressed animals seized from rural Princeton property

RCMP assisted as BC SPCA executed search warrant

Morning Start: There is a Hot Pink Lake in Australia

Your morning start for Friday, Sept. 25, 2020

Teach your kids to protect themselves from abuse

Two weeks ago The Spotlight published a story about a child sex… Continue reading

‘Schools are healthy’: IH medical health officer

Children have a low risk of catching and spreading COVID-19

B.C.’s top doctor thanks supporters after revealing threats over COVID-19 measures

Dr. Bonnie Henry says COVID-19 has caused some people to lash out in anger and frustration out of fear

PHOTOS: 2nd calf in a month confirmed among Southern Resident killer whale pod

Center for Whale Research said they will eagerly await to observe the calf to evaluate its health

B.C. VOTES 2020: Speculation tax misses speculators, B.C. Liberals say

Andrew Wilkinson, John Horgan clash over housing costs, solutions

Kelowna RCMP warn public as gift card scam season comes

“Gift cards are for gifts, not payments,” Kelowna RCMP said

Join Black Press Media and Do Some Good

Pay it Forward program supports local businesses in their community giving

Osoyoos model train attraction wins Tripadvisor award

Desert Model Railroad wins nod for Traveller’s Choice

NDP, Greens divided on pace of child care improvements in B.C. election campaign

NDP Leader John Horgan recommitted to $10-a-day child care and blamed the Greens for not supporting his efforts

BC Liberal Leader talks drug addiction in the Lower Mainland

Drug addiction and public safety a top priority says Andrew Wilkinson

Kamloops Mounties happened upon alleged gang-related robbery, kidnapping

Michael Mathieson is charged with armed robbery, unlawful confinement and kidnapping

Most Read