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

UPDATE: Missing Oregon family confirmed safe

Family may have intentionally wandered into wilderness

New pedestrian walkway on Lakelse Avenue

Construction began Tuesday and is expected to last a week

Marijuana to be legal in Canada Oct. 17: Trudeau

Prime Minister made the announcement during question period in the House of Commons

Better dangerous goods response wanted

Regional district directors to consider resolution tomorrow

Terrace golf club managers shoot rounds for ALS

Germain Francoeur and Rob Wilke golfed starting at 5 a.m. to raise money as part of a BC initiative

In reversal, Trump signs executive order to stop family separation

President had been wrongly insisting he had no choice but to separate families apprehended at border

New Jersey forward Taylor Hall wins Hart Trophy as NHL MVP

Vancouver’s Sedin brothers share King Clancy Award for humanitarian efforts

50 new fires sparked in B.C. after lightning strikes across province

Similar conditions seen at the beginning of 2017 wildfire season

B.C. woman graduates high school at age 92

Nanaimo’s Joan Deebank the oldest high school graduate ever in B.C., as far as ministry can confirm

B.C. Appeal Court rules lottery winner must be paid back $600,000 loan

Enone Rosas won $4.1 million in a lottery in 2007 and loaned a portion to a friend

B.C. man surprised after used needle falls from sky

A Vernon resident said a syringe fell out of the sky and landed at his feet

Liquor review finds issues with B.C. wholesale monopoly

Report calls for ‘conflict of interest’ in system to be fixed

B.C. ‘will be ready’ for marijuana legalization

Public Safety Minister Mike Farnworth says some stores open by Oct. 17

Polygamous wife appeals conviction in B.C. child bride case

Emily Blackmore was found guilty of taking her underage daughter to U.S. to marry church leader

Most Read