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

Port Clements gets cell service

Telus built a $500,000 wireless communication site for the remote Haida Gwaii village

Identifying child care space needs on the island

B.C. government is providing a $25,000 grant for more than 70 communities to help improve daycare

Northwest mobile unit to help those at heart of mental health, addiction crisis

Province, Northern Health unveils new unit in Terrace to bridge gaps in services

Sk’aadgaa Naay slips in Fraser Institute elementary school rankings

The school stayed at a rating of 5, but slipped to 694th rank in 2017/18

B.C. First Nations’ intake of essential nutrients to drop by 31 per cent: study

Professors project the nutrient decrease by 2050 if climate change mitigation continues as is

Sparks fly as SUV speeds down wrong side of Highway 1 trying to flee RCMP

Captured on video, the vehicle headed westbound against oncoming traffic before crashing

Story of Wet’suwet’en Chief Alfred Joseph being told

Song of the Earth on Chief Gisday’wa will be launched in Hagwilget

Houston woman gets two years for aggravated assault

Ewald pleads guilty; trial of co-accused Calvin Dyrland begins in Smithers B.C. court

Fundraising campaign launched for man caught in SilverStar avalanche

In only two days, the GoFundMe surpassed its $15,000 goal

Terror at sea: Helicopter rescues frightened cruise passengers in Norway

The Viking Sky cruise ship was carrying 1,300 passengers and crew when it experienced engine trouble

Search and rescue team helicopters injured climber from B.C. provincial park

A 30-year-old woman suffered a suspected lower-limb fracture in Skaha Bluffs Provincial Park

DOJ: Trump campaign did not co-ordinate with Russia in 2016

Attorney General William Barr said special counsel “does not exonerate” Trump of obstructing justice

Trudeau in Vancouver to support Tamara Taggart at Liberal nomination event

The former broadcaster is seeking the nomination for the Vancouver Kingsway riding

Trudeau calls May 6 byelection for B.C. riding of Nanaimo-Ladysmith

The riding opened up when Sheila Malcolmson resigned in January

Most Read