Homeowners preparing to pay more following interest rate hike

Irving Hamilton
July 13, 2018

But even with such unknowns, TD chief economist Beata Caranci said she expects Poloz to work with the positive data he has in front of him.

Poloz stressed the bank will continue with its gradual, data-dependent approach as it moves towards its neutral rate, which his team has pegged between 2.5 and 3.5 per cent.

The bank's key rate is directly linked to variable-rate mortgages and home equity lines of credit.

The central bank increased its benchmark interest rate to 1.5 per cent, up from 1.25 per cent, marking the fourth increase over the last 12 months.

"Canada's economy continues to operate close to its capacity and the composition of growth is shifting", said the BOC.

The central bank said it expects the Canadian economy to expand by 2 per cent per year on average between 2018 and 2020, noting that recently implemented tariffs on steel and aluminium will likely have only "modest" effects on growth and inflation.

Mexico earthquake unearths ancient temple
Works take place at the substructure inside the Teopanzolco pyramid in Cuernavaca, Morelos State, Mexico on July 11, 2018. Koniecza added: "The floor of both shrines sank and bent, which also put their stability in danger".

Canadian businesses must also contend with the uncertainty surrounding the hard renegotiation of the North American Free Trade Agreement, for which talks have stalled.

Aside from the US trade threat, there isn't much to keep the Bank of Canada on hold, added Brett House, deputy chief economist for Scotiabank Economics.

The Bank of Canada is also releasing its quarterly update of projections, which predicts slightly stronger growth in both 2019 and 2020, compared with its outlook in April. The Bank estimates that underlying wage growth is running at about 2.3 per cent, slower than would be expected in a labour market with no slack.

If the trade dispute deteriorates further, resulting in something as damaging to the economy as auto tariffs, hiking the interest rate now would also give Poloz more flexibility to lower it down the road, if necessary.

The country's inflation rate is expected to rise as high as 2.5 per cent - above the two per cent mid-point of the bank's target range - due to temporary factors such as higher gasoline prices.

Other reports by

Discuss This Article

FOLLOW OUR NEWSPAPER