OTTAWA—The economy’s impressive run prompted the Bank of Canada to raise its trend-setting interest rate Wednesday for the third time since last summer — but looking ahead it warned of growing uncertainties about NAFTA.The central bank pointed to unexpectedly solid economic numbers as key drivers behind its decision to hike the rate to 1.25 per cent, up from one per cent. The increase followed hikes in July and September.While the central bank signalled more rate increases are likely over time, it noted the unknowns surrounding the future of the North American Free Trade Agreement — and the potential negatives for Canada — were casting a widening shadow over its outlook.The bank said “some continued monetary policy accommodation will likely be needed” to keep the economy operating close to its full potential.Governing council, it added, would remain cautious when considering future hikes by assessing incoming data such as the economy’s sensitivity to the higher borrowing rates.For the move Wednesday, the bank couldn’t ignore the 2017 data, even as it acknowledged the risks about NAFTA’s renegotiation.“Recent data have been strong, inflation is close to target, and the economy is operating roughly at capacity,” the bank said in a statement.“Consumption and residential investment have been stronger than anticipated, reflecting strong employment growth. Business investment has been increasing at a solid pace, and investment intentions remain positive.”Read more:With another interest-rate hike expected, household debt looms largeCanada’s real-estate market slowdown could be exacerbated by interest-rate hikeCanada’s jobless rate raises odds of interest rate hikeMoving forward, the bank predicted household spending and investment to gradually contribute less to economic growth, given the higher interest rates and stricter mortgage rules. It predicted Canada’s high lev ...
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