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

Shimizu cherry tree legend set in stone

Canadian government installs a plaque in Prince Rupert to honour the memory of Shotaro Shimizu

New Coast Guard radar boosts marine traffic monitoring off B.C. coast

Six radar installations set up for Georgia Strait to Queen Charlotte Strait to Prince Rupert

Rainmaker Liam McChesney commits to Utah State University

Charles Hays Rainmakers’ forward will play on the U.S. school’s basketball team in 2019-2020

Up to 20 cannabis stores possible in Prince Rupert

City planner said it’s ‘ludicrous’ to expect that many shops downtown

Government makes amends for chopped cherry trees

Shimizu family to attend a special ceremony in Prince Rupert where a plaque will be revealed

This Week – Episode 111

Selena Horne, Charles Hays high school musical star, co-hosts the Northern View’s weekly show

Delivering the paper as a family

The Northern View is looking for newspaper carriers in Prince Rupert, join our team today

Sunrise ceremony at B.C. legislature honours Louis Riel

Nov. 16 marks the 133th anniversary of the Métis leader’s death

California wildfire death toll hits 63

Sheriff says hundreds still missing in nation’s deadliest wildfire

Harsh storms have nearly tripled power outages in last five years, BC Hydro says

More frequent and severe storms have damaged Hydro’s electrical systems since 2013

Trudeau to meet key Pacific trade partners at APEC leaders’ summit

Canada became one of the first six countries to ratify the CPTPP

Judge orders White House to return press pass to CNN’s Acosta

U.S. District Court Judge will decide on White House press credentials of CNN reporter Jim Acosta

WikiLeaks chief could see charges, US court filing suggests

Charges against Julian Assange could help illuminate the question of whether Russia co-ordinated with the Trump campaign

Federal MPs denounce controversial Facebook post targeting Sajjan

Okanagan Conservatives apologize for controversial Facebook post

Most Read