Highest in a decade
Bank of Canada raises interest rate by a quarter point
OTTAWA — The Bank of Canada raised its trend-setting interest rate Wednesday and sent signals that future hikes could be upon Canadians sooner than previously expected.
With a big source of trade uncertainty finally out of the way, the central bank delivered a quarter-point rate increase for the fifth time since the summer of 2017. The move lifted the benchmark to 1.75 per cent — its highest level in about a decade.
The hike arrived with Canada’s economy showing resilience and the unemployment rate hovering near four-decade lows.
The increase followed governor Stephen Poloz’s first policy meeting since Canada agreed with the United States and Mexico earlier this month on an updated North American free trade deal. The bank said the new trade agreement will reduce uncertainty, which it described as “an important curb” on business confidence and investment.
The removal of one of the trade shackles also coincided with a notable change: a single word yanked from the bank’s statement.
Recent post-policy-meeting statements used the word “gradual” to help explain how the bank’s governing council would approach the timing of future rate increases.
This time around, however, the bank decided to leave the word out. Some observers interpreted the omission as a signal of the bank’s shift to a faster hiking path.
Poloz insisted the word’s exclusion was designed to give the bank more flexibility when it comes to the speed at which it chooses to proceed.
“Markets seem to have settled on ‘gradual’ meaning we would only move on every second meeting, to put it most bluntly,” Poloz told reporters Wednesday when asked about the change.
“We thought, well, we really don’t want to reinforce that as a locked-in, mechanical expectation. And so, this is serving notice that it could be faster or it could be slower.”
Either way, the bank sent a clear message that more increases will be needed to bring the rate to a “neutral stance” in order to keep inflation from running too hot. Poloz’s team has pegged the neutral rate at between 2.5 and 3.5 per cent, so several more increases are likely on the way.
The bank stressed the pace of future hikes