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

UPDATE: BC Wildfire boxes in Summerland blaze

A fire sparked earlier in the evening near Summerland is “completely boxed… Continue reading

More wildfires discovered near Lumby, Cherryville

Canadian Armed Troops in Okanagan, Mabel Creek blaze creeps towards lake

Naramata firefighters diverted after fires breaches Burns Lake camp

The crew was sent to Vanderhoof after a wildfire reportedly overtook a camp near Burns Lake

Bathtubs to race on Okanagan Lake

Summerland to host fourth annual Great Ogopogo Bathtub Race on Aug. 18 at Powell Beach

Missing Alberta man believed to be travelling to Penticton

RCMP are asking for assistance in locating a missing man

Armed Troops in Okanagan to help firefighters

Canadian Armed Forces arrived in Vernon Thursday, being deployed to West Kelowna fire

Cool Creek blaze near Princeton growing with “extreme fire behaviour”

The Cool Creek Fire burning 22 km east of Eastgate has merged… Continue reading

Safeway union urges prejection of mediator recommendations

Says mediator asks for too many concessions

Naramata firefighters diverted after fires breaches Burns Lake camp

The crew was sent to Vanderhoof after a wildfire reportedly overtook a camp near Burns Lake

To address peacock problem, B.C. city moves ahead on trapping plan

Surrey’s new bylaw focuses on ensuring people no longer feed the birds, ahead of relocation

Hospitals to see ‘delays’ in care after losing Saudi students, health group says

About 1,000 Saudi residents called back to kingdom after suspending diplomatic relations with Canada

Powwow Princess looks back on her reign

Nicole Schellenberg, 15, discusses her experience as the Between the Lakes Pow Wow Princess

Bernier diatribe against ‘extreme multiculturalism’ boosts Liberal coffers

Party spokesperson Braeden Caley says online donations doubled, social media engagement quadrupled

‘Disjointed’ system hinders British Columbia First Nations in wildfire fight

More than 550 wildfires were burning in B.C. and crews were bracing for wind and dry lightning

Most Read