Bank of Canada delivers another hike, key interest rate rises to 1.5%

Stephen Poloz. iPolitics  Matthew Usherwood

Stephen Poloz. iPolitics Matthew Usherwood

The central bank's rate decision arrives as Canada faces significant trade-related uncertainties, including stalled NAFTA talks, US steel and aluminum tariffs and the threat of more duties on the automotive sector.

Poloz recently said the impacts of the U.S.

The Bank of Canada expectedly increased their key interest rate by 25bps to 1.50%, marking the fourth rate hike in the last 12-months, which resulted in the Canadian dollar climbing on the news. -Canada trade dispute would figure prominently in the bank's decision-making process for today's rate announcement.

The rate is what banks pay for short-term loans, which affects what consumers pay for things like mortgages, lines of credit and savings accounts.

But it is watching what happens in trade tensions with the United States, that it predicts will cut almost 0.7 per cent from economic growth by the end of 2020.

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

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. Talks to renegotiate the North American Free Trade Agreement stalled earlier this year, and Canada imposed retaliatory tariffs this month.

Even with the trade issues, the Bank of Canada is now predicting slightly stronger growth for Canada over the next couple of years, according to updated projections it released Wednesday in its quarterly monetary policy report.

Poloz also signaled he was comfortable with how financial markets were interpreting the central bank's message, noting the hike was "highly anticipated".

The central bank says Canadian growth will continue to see bigger contributions from exports and business investment, while it expects household spending to represent a smaller share due to the dampening effects of higher interest rates and stricter mortgage rules.

So what does the rate hike mean for Canadians?

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