Bank of Canada hikes key interest rate to 1.25%

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The Bank of Canada raised its key lending rate by a quarter percentage point to 1.25 per cent Wednesday, the third time it has moved its benchmark rate from once-record lows last summer.

The bank’s rate has an impact on rates that Canadians get from retail banks for things like mortgages, savings accounts and GICs. The move means borrowers can expect to pay more, but savers can expect to earn more, too.

Officials at the bank will give more details on their thinking at a news conference in Ottawa at 11:15 a.m. ET, which CBC will carry live here.

The bank was widely expected to raise its key rate after economic data in recent months showed gross domestic product growing, the job market healthy and the cost of living ticking higher.

In the accompanying Monetary Policy Report, the bank nudged up its expectations for how the economy will perform this year and next. The bank now expects Canada’s economy to expand by 2.2 per cent this year and 1.6 per cent in 2019. Previously the bank was anticipating 2.1 and 1.5 per cent growth.

But while broadly positive about the economy’s prospects, the bank cited “uncertainty about the future of NAFTA” as a reason for concern moving forward.


The Bank of Canada, led by Governor Stephen Poloz, has hiked its benchmark lending rate to 1.25 per cent. (Bloomberg)

Officials from Canada, the United States and Mexico are set to meet again to discuss trade issues next week, and there are concerns that the U.S. is getting ready to unilaterally pull out of the North American Free Trade Agreement — a development that would hit Canadian exports hard.

“At this stage, it is difficult to predict the possible outcomes of trade negotiations and the timing, incidence and magnitude of their effects,” the bank said in its MPR, which mentions NAFTA concerns nine times in the 21-page document.

rate hike impact

Rate hikes from the central bank can add up fast for Canadians with variable rate mortgages. (Scott Galley/CBC)

“Today’s rate hike was a rear-view mirror move,” CIBC economist Avery Shenfeld said of the bank’s decision to hike, but expressing concerns about NAFTA and other dark clouds on the horizon “hints that the view out the front window isn’t quite as sunny.” At the very least, he said, the statement reinforces “the need to be cautious in how fast they hike ahead.”

While the rate hike was expected, some of the bank’s concerns came as a negative surprise to currency investors, who sold off the loonie after the rate decision came out. Shortly after the announcement, the loonie was changing hands at just over 80 cents US, off about a half a cent from where it was before the announcement.

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Bank of Canada hikes key interest rate to 1.25%

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