Tuesday, 17 July, 2018


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

Conrad Doyle | 12 July, 2018, 00:03

At the rate decision, BoC officials said they expect "higher interest rates will be warranted to keep inflation near target", offering some insight on the stance of the bank heading into future rate decisions.

BNN Bloomberg speaks with PIMCO's Ed Devlin about his take on the Bank of Canada's decision to raise rates amid ongoing economic challenges the country is facing.

The Bank of Canada will also release its updated economic projections today in its latest edition of its quarterly monetary policy report.

At the same time, household spending will represent a smaller and smaller share of overall growth due to the dampening effects of higher interest rates and stricter mortgage rules, it said.

Governor Stephen Poloz said trade tensions were the biggest issue on the table.

As in April, the projection incorporates an estimate of the impact of trade uncertainty on Canadian investment and exports.

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.

"This U.S. dollar move offsets, and even more so, the somewhat hawkish BoC hike", said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in NY.

CPI and the Bank's core measures of inflation remain near 2 per cent, consistent with an economy operating close to capacity.

"This should be consistent with a more firm pricing for another hike this year", said Alvise Marino, FX strategist at Credit Suisse in NY.

The Bank of Canada raised its benchmark interest rate by a quarter percentage point to 1.5 per cent Wednesday, even as the economy faces fallout from widening trade uncertainty.

Canadian government bond prices were mostly lower across a flatter yield curve, with the two-year down 4 cents to yield 1.959 per cent and the 10-year falling 5 cents to yield 2.156 per cent.

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