The Bank of Canada monetary policy statement from July meeting

Cornelia Mascio
Luglio 11, 2018

Looking ahead, the bank says it expects higher interest rates will be necessary over time to keep inflation near its target, however, it intends to continue along a gradual, data-dependent approach.

The Bank Rate is correspondingly 1 ¾ per cent and the deposit rate is 1 ¼ per cent.

The Bank of Canada will also release its updated economic projections today in its latest edition of its quarterly monetary policy report. The interest charged on this kind of debt typically goes up when the Bank raises its rate.

Scott Hannah says higher interest rates have also helped to cool down the country's real estate markets, helping future homeowners.

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.

The bank raised the rate even as it predicts larger impacts from the widening trade uncertainty, particularly after the United States imposed steel and aluminum tariffs on Canada and Ottawa's retaliatory measures.

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.

The fourth rate increase since July 2017 comes as Canada grapples with the pressures of rising inflation and solid job growth despite an increasingly hostile US trade policy that could choke off demand from Canada's largest export market.

"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 Royal Bank of Canada said Wednesday it will increase its prime rate by a quarter of a percentage point to 3.70 per cent, effective Thursday. CPI inflation is expected to edge up further to about 2.5 per cent before settling back to 2 per cent by the second half of 2019.

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