BoC maintains cautious tone after rate hike

Bank of Canada maintains cautious tone after rate hike

Canada’s Big Six, anticipating that the central bank would raise the benchmark interest rate on January 17, increased their prime lending rates beforehand. 

Although the major commercial banks had arrived at a consensus, there was considerable debate among market analysts over whether the Bank of Canada (BoC) would hike rates. Ongoing NAFTA negotiations, the implementation of OSFI’s new mortgage rules, and record-high household debt were all cited as causes of concern ahead of the meeting. 

Offsetting these fears, strong economic data in the form of an inflation rate of 2.1% in November, a positive jobs report in December, and a more upbeat business outlook forced the hand of the central bank.

Also read: Major lenders hike mortgage rates 

The BoC maintained its cautious tone even after hiking the benchmark lending rate a quarter point to 1.25%. It warned that “continued monetary policy accommodation will likely be needed to keep the economy operating close to potential and inflation on target.” 

Canada’s economic growth is expected to drop below 2% by 2019. A report released by the Parliamentary Budget Officer (PBO) last year said the central bank is likely to hike its key interest rate until it hits 3% by 2019

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