The Bank of Canada is seen in Ottawa on Wednesday, May 30, 2018. THE CANADIAN PRESS/Sean Kilpatrick

Bank of Canada keeps key interest rate target on hold at 1.25 per cent

The Bank of Canada held its key interest rate target, but hinted that rate hikes

The Bank of Canada kept its key interest rate target on hold Wednesday, but hinted that rate hikes could be coming as it noted the Canadian economy was a little stronger than expected in the first quarter.

The central bank held steady its target for the overnight rate — a key financial benchmark that influences the prime lending rates at the country’s big banks — at 1.25 per cent.

A statement released with the decision noted that exports were more robust than forecast as data on imports of machinery and equipment suggest continued recovery in investment, but also pointed to softer real estate activity into the second quarter as the market ”continues to adjust to new mortgage guidelines and higher borrowing rates.”

“Going forward, solid labour income growth supports the expectation that housing activity will pick up and consumption will continue to contribute importantly to growth in 2018,” it said.

The central bank also said global economic activity remains broadly on track, but added that ongoing uncertainty about trade policies is dampening global business investment and stresses are developing in some emerging market economies.

It noted that recent developments have reinforced its view that higher rates will be warranted to keep inflation near its target, but added that it will take a gradual approach and be guided by the economic data.

“In particular, the bank will continue to assess the economy’s sensitivity to interest rate movements and the evolution of economic capacity,” it said.

Related: Bank of Canada holds benchmark interest rate as economic growth moderates

Related: Bank of Canada says Canadians owe $2 trillion as it mulls next rate hike

Economists had predicted the Bank of Canada would keep its key rate on hold Wednesday, but many have suggested the rate may be headed higher later this year.

The central bank’s statement had “a hawkish tone, suggesting the next rate hike is not far off,” said TD Bank senior economist Brian DePratto.

“All told, the positives seem to outweigh the negatives,” DePratto wrote in a note to clients.

“Gone was the reference to ‘caution’ that typified the last few statements. Today’s statement instead chose the term ‘gradual’ to describe the approach to policy adjustments. Importantly, interest rate sensitivity and the evolution of economic capacity remained areas of particular focus.”

The central bank’s decision to keep its trend-setting rate on hold came as inflation sits above the two per cent midpoint of its target range of one to three per cent and core inflation has crept past the two per cent mark for the first time since 2012.

It noted that inflation will likely be a bit higher in the near term than was forecast in its April monetary policy report due to recent increases in gasoline prices, but that it will look through the transitory impact of the fluctuations at the pump.

The central bank has raised its key rate three times since last summer, increases that have prompted the big Canadian banks to raise their prime rates which are used to set the rates charged for variable-rate mortgages and other variable-rate loans.

Its next scheduled interest rate decision is set for July 11 when it will also update its outlook for the economy and inflation in its monetary policy report.

Craig Wong, The Canadian Press

Like us on Facebook and follow us on Twitter.

Just Posted

B.C. Legions in need of young members to continue aiding veterans into the future

Lest we forget what thousands of men and women did to fight for Canada’s freedoms – but without new membership, many Legion chapters face dwindling numbers

Two young B.C. cowboys win big at Canadian Finals in Red Deer, Alberta

Kash Sigouin of Barriere, and Carson Payton from Monte Creek have had… Continue reading

Little Fort Pickleball Clinic – a smashing success

On Saturday, Oct. 27, a Pickleball Clinic was held at the Little… Continue reading

MP McLeod demands government protect Canadians’ privacy

Kamloops Thompson-Cariboo MP says she was shocked to learn that Statistics Canada is asking banks across the country for financial transaction data and personal information on 500,000 Canadians without their knowledge

New mayor and council sworn in for District of Barriere

A new mayor and three new members to council for District of Barriere

VIDEO: Amazon to split second HQ between New York, Virginia

Official decision expected later Tuesday to end competition between North American cities to win bid and its promise of 50,000 jobs

Disabled boy has ‘forgiven’ bullies who walked on him in stream, mom says

A Cape Breton teen who has cerebral palsy was told to lie in a stream as other kids walked over him

Letters shed light on state of mind of B.C. mom accused of daughter’s murder

Trial of South Surrey mother Lisa Batstone begins in BC Supreme Court

Vancouver man must pay $22,000 after breaking strata rules

Peter Gordon took his fight over his rented condo to the civil resolution tribunal, but lost

B.C. cheese linked to 5 E. coli cases

People are asked to throw out or return ‘Qualicum Spice’ cheese

Canada Post no longer guarantees delivery times amid more rotating strikes

The Canadian Union of Postal Workers closed two major processing centres in Ontario and B.C.

B.C. city councillor resigns as AutismBC director amid SOGI controversy

AutismBC president Gary Robins says Laurie Guerra’s resignation is effective Nov. 12

McGill students vote overwhelmingly to change Redmen team nickname

Student union held a referendum after a campaign by Indigenous students

B.C. university pride group replaces white supremacy posters

Around 50 people walked through downtown Victoria to share posters of love

Most Read