Bank of Canada Raises Key Interest Rate To 1.50%

  • Bank of Canada Raises Key Interest Rate To 1.50%

Bank of Canada Raises Key Interest Rate To 1.50%

Poloz recently said the impacts of the U.S.

Some people may have to dig a little deeper to cover mortgage payments after the Bank of Canada raised the key interest rate.

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.

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.

With the economy operating close to full capacity, waiting too long to start raising the benchmark runs the risk the central bank would have to introduce increases more aggressively, Caranci said. He added that the unknowns around trade could also include positive developments such as the successful renegotiation of the North American Free Trade Agreement over the coming months.

The Bank of Canada also has its eye on how widening global trade disputes, including an intensifying battle between the USA and China, will affect the world's economy. The bank had been criticized for a surprise rate hike last September.

It means consumers with variable rate mortgages or upcoming mortgage renewals will have to pay more.

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

National Bank of Canada experts wrote in a note that Poloz may choose to err on the side of caution when it comes to future hikes because of threats of auto tariffs, which they warned, if applied, would have "unambiguously devastating economic impacts", particularly in Ontario.