Bank of Canada holds interest rate at 1%

Bank of Canada holds rate but sends fresh signals that hikes are on the horizon

The Bank of Canada building is pictured in Ottawa on September 6, 2011. The Bank of Canada is defending itself amid questions about its public silence ahead of an interest-rate increase last week that caught many analysts by surprise. File photo by THE CANADIAN PRESS

The Bank of Canada building is pictured in Ottawa on September 6, 2011. The Bank of Canada is defending itself amid questions about its public silence ahead of an interest-rate increase last week that caught many analysts by surprise. File photo by THE CANADIAN PRESS

The Bank of Canada stuck with its trend-setting interest rate Wednesday, but it offered fresh, yet cautious, warnings to Canadians that increases are likely on the way.

The central bank has now left the rate locked at one per cent for two straight policy announcements after the strengthening economy prompted it to raise it twice in the summer.

In announcing the decision, the bank pointed to several recent positives that could support higher rates in the coming months. They included encouraging job and wage growth, sturdy business investment and the resilience of consumer spending despite higher borrowing costs and Canadians’ heavy debt loads.

On top of that, there’s increasing evidence in the economic data that the benefits from government infrastructure investments have begun to work their way through the economy, the bank said.

But on the other hand, the bank noted exports have slipped more than expected in recent months after a powerful start to the year, although it continues to predict trade growth to pick up due to rising foreign demand.

It also said the international outlook continues to face considerable uncertainty mostly because of geopolitical- and trade-related factors.

“While higher interest rates will likely be required over time, (the bank’s) governing council will continue to be cautious,” the bank said in a statement Wednesday that accompanied its decision.

It will be “guided by incoming data in assessing the economy’s sensitivity to interest rates, the evolution of economic capacity and the dynamics of both wage growth and inflation.”

The bank said inflation, a key factor in its rate decisions, has been slightly higher than anticipated and could stay that way in the short term because of temporary factors like stronger gasoline prices. Core inflation, which measures underlying inflation by omitting volatile items like gas, has continued to inch upwards.

Governor Stephen Poloz raised rates in July and September in response to an impressive economic run that began in late 2016. The hikes took back the two rate cuts he introduced in 2015 to help cushion, and stimulate, the economy from the collapse in oil prices.

From here, the bank must assess how to proceed with the interest rate while taking into consideration that Canadian households have amassed high levels of debt and the presence of still-hot housing markets in areas like Toronto and Vancouver.

Last month, the Bank of Canada flagged the steady climb of household debt and these real estate markets as the financial system’s top vulnerabilities.

The bank’s statement Wednesday said recent economic indicators have been in line with its October forecast, which projected a moderation following the country’s exceptional growth in the first half of 2017.

The document contained a few differences compared with the statement that accompanied its last rate announcement in October.

This time, the bank once again noted the unknowns over the future of trade policy, however, it did not specifically mention the ongoing renegotiation of the North American Free Trade Agreement.

Andy Blatchford, The Canadian Press

Like us on Facebook and follow us on Twitter.

Just Posted

Area A Director Ali Grieve (right), Village of Fruitvale Mayor Steve Morissette (front), and Village of Montrose Mayor Mike Walsh (left) held a congratulatory ceremony for Beaver Valley students who are part of the Class of 2021 graduates of J. L. Crowe Secondary at Beaver Creek Park on Thursday. Photo: Jim Bailey
Beaver Valley Grads of 2021

Beaver Valley mayors, RDKB Area A director celebrate their 2021 graduates with gift ceremony

Adrian Moyls is the Selkirk College Class of 2021 valedictorian and graduate of the School of Health and Human Services. Photo: Submitted
Selkirk College valedictorian proves mettle in accomplishment

Adrian Moyls is a graduate of the School of Health and Human Services

Selkirk College has begun its search in earnest for a leader to replace president Angus Graeme who is set to retire from his position in May 2022. Photo: Submitted
Selkirk College seeks community input for president search

Current president Angus Graeme retires next year

A report shows nine West Kootenay communities are have more low-income persons than the provincial average. File photo
Study casts new light on poverty in the West Kootenay

Nine communities in region have more low-income residents than provincial average

A tent housing a mobile vaccination clinic. (Interior Health/Contributed)
Over 5K jabbed at Interior Health mobile COVID-19 vaccine clinics

The clinics have made stops in more than 40 communities since launching last week

A small pod of Pacific white-sided dolphins pass by close to shore in Campbell River June 16, 2021. Still capture from video courtesy of Kimberly Hart
VIDEO: Dolphin sunset captured from Vancouver Island shore

Spectacular setting for view of travelling pod of Pacific white-sided dolphins

Gary Abbott (left) and Louis De Jaeger were two of the organizers for the 2014 Spirit of the People Powwow in Chilliwack. Monday, June 21, 2021 is Indigenous Peoples Day. (Jenna Hauck/ Chilliwack Progress file)
Unofficial holidays: Here’s what people are celebrating for the week of June 20 to 26

Indigenous Peoples Day, Take Your Dog to Work Day, Onion Rings Day all coming up this week

Central Okanagan Grade 12 grads are set to get $500 each after a more than $1 million donation from a Kelowna couple. (File photo)
B.C. couple donating $500 to every Grade 12 student in the Okanagan

Anonymous donors identified as Kelowna entrepreneurs Lance and Tammy Torgerson

Rita Coolidge played the main stage at Vancouver Island Musicfest in 2017. (Black Press file photo)
This year’s Vancouver Island MusicFest to virtually showcase beauty of Comox Valley

Returning July 9 through 11 with more than 25 hours of music performances

British Columbia’s premier says he’s received a second dose of the Oxford-AstraZeneca COVID-19 vaccine. (Twitter/John Horgan)
B.C. premier gets 2nd dose of AstraZeneca COVID-19 vaccine

John Horgan shared a photo of himself on social media Friday afternoon holding a completed vaccination card

A lotto Max ticket is shown in Toronto on Monday Feb. 26, 2018.THE CANADIAN PRESS
No winning ticket sold for Friday’s $70 million Lotto Max jackpot

The huge jackpot has remained unclaimed for several weeks now

Police are asking for public assistance in locating Anthony Graham who has been charged with the murders of Kamloops brothers Carlo and Erick Fryer. (RCMP photo)
2 charged, suspect at large in killings of B.C. brothers linked to gang activity: RCMP

Kamloops brothers Erick and Carlo Fryer were found deceased in May on a remote Okanagan road

Albert Health Minister Tyler Shandro and Alberta Premier Jason Kenney unveil an opening sign after speaking about the Open for Summer Plan and next steps in the COVID-19 vaccine rollout, in Edmonton, Friday, June 18, 2021. THE CANADIAN PRESS/Jason Franson
Alberta 1st province in Canada to lift all COVID-19 public health restrictions

70.2% of eligible citizens 12 and older in the province have received a dose of the vaccine

Most Read