Friday, 20 July, 2018

Bank of Canada raises interest rate for first time in 6 months

Image of DailyFX economic calendar Bank Of Canada Raises Key Lending Rate To 1.5%. Here's What That Means For You
Nellie Chapman | 13 July, 2018, 00:08

However, the negative blow of the trade policies recently put in place are to be largely offset by the positives for Canada from higher oil prices, which are above US$73 per barrel, and the stronger USA economy, the bank said.

For one, Poloz said the bank can't make policy decisions based on "hypothetical scenarios". Talks to renegotiate the North American Free Trade Agreement stalled earlier this year, and Canada imposed retaliatory tariffs this month. According to ratehub.ca, a mortgage worth $400,000 amortized over 25 years with a 5-year variable rate of 2.50 per cent, will now cost $50 per month or $600 per year.

With two daughters off school over summer, finding affordable activities is key for Florence van Dijk, especially following news of yet another interest rate hike.

Poloz also argued it should be clear that interest rate adjustments are "ill-suited" to counteract all the effects of protectionist measures, given how these trade actions affect multiple areas of the economy.

In a statement, the BOC said it expects the global economy to grow by about 3.75% this year, and by and 3.5% next year.

"The Bank maintained a cautious tone while highlighting its data dependency, that said, this was not the "dovish" hike many, including ourselves, expected".

So what does the rate hike mean for Canadians? Inflation ran at a 2.2-per-cent pace in May, slightly above the Bank's target of 2 per cent.

The rate increase, by a quarter of a percentage point, took the bank's overnight interest rate to 1.50 percent, still well below the "neutral" rate of 2.5-3.5 percent the bank sees as a sweet spot for monetary policy, where it neither boosts nor restrains growth.

National Bank of Canada experts wrote in a note that Poloz may choose to err on the side of caution when it comes to future hikes because of threats of auto tariffs, which they warned, if applied, would have "unambiguously devastating economic impacts", particularly in Ontario.