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, the bank added, would remain cautious when considering future hikes by assessing incoming data such as the economy’s sensitivity to the higher borrowing rates. The statement raised questions about how quickly the bank will raise the rate from here.Royal Bank of Canada was first among Canada’s banks to respond to the rate hike, raising its prime lending rate by a quarter of a percentage point, to 3.45 per cent, effective Thursday. Other banks are expected to make similar moves.For Wednesday’s move, the central bank couldn’t ignore the encouraging late-2017 data, even as it acknowledged the risks about NAFTA’s renegotiation.Governor Stephen Poloz stressed during a news conference that the bank remains data dependent, although he conceded that a rate hike wasn’t a “no-brainer” this time around because of the NAFTA talks.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 hike“Of cour ...
|
