Bank of Canada raises benchmark interest rate to 1.5 per cent

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Poloz recently said the impacts of the U.S. Temporary factors are causing volatility in quarterly growth rates: the Bank projects a pick-up to 2.8 per cent in the second quarter and a moderation to 1.5 per cent in the third.

The rate is what banks pay for short-term loans, which affects what consumers pay for things like mortgages, lines of credit and savings accounts.

The Bank of Canada has increased its key interest rate by a quarter-point to 1.5 per cent in a move that was widely expected.

The Bank of Canada (BOC) raised its benchmark interest rate to 1.5% today, up from the 1.25% where it has sat for the last six months.

Overall, it still expects average growth of close to 2% over 2018-2020. He added that the unknowns around trade could also include positive developments such as the successful renegotiation of the North American Free Trade Agreement over the coming months.

If the trade dispute deteriorates further, resulting in something as damaging to the economy as auto tariffs, hiking the interest rate now would also give Poloz more flexibility to lower it down the road, if necessary.

However, the negative blow of the trade policies recently put in place are to be largely offset by the positives for Canada from higher oil prices, which are above US$73 per barrel, and the stronger USA economy, the bank said.

Aside from the US trade threat, there isn't much to keep the Bank of Canada on hold, added Brett House, deputy chief economist for Scotiabank Economics.

"My experience having come from Ireland five years ago is I've experienced recession and I've experienced interest hikes before so I'm cautious at this stage", said van Dijk.

TD senior economist Brian DePratto wrote in a note to clients Wednesday that the messaging is consistent with a central bank that's "committed to a rate hike cycle, but leaves sufficient room to adjust to evolving events". The Bank estimates that underlying wage growth is running at about 2.3 per cent, slower than would be expected in a labour market with no slack.

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