The Bank of Canada on Wednesday hiked its benchmark interest rate to 1.5 percent, the first increase since mid-January, as the Group of Seven economy tries to tame inflation.
The central bank said the country’s economy was chugging along, but said the impact of global trade uncertainty on Canadian exports and investment had grown, in the face of an intensifying tariff war between the US and its partners.
Nevertheless, it said the “estimated impact” of US tariffs on Canadian steel and aluminum, and Canadian countermeasures, on the country’s growth would be “modest.”
The interest rate increase of 25 basis points put the rate at its highest point in a decade.
“Canada’s economy continues to operate close to its capacity,” the bank said in a statement. “Overall, the Bank still expects average growth of close to 2 percent over 2018-2020.”
Inflation “is expected to edge up further to about 2.5 percent before settling back to 2 percent by the second half of 2019,” it said.
The bank said that “higher interest rates will be warranted to keep inflation near target,” adding that it would “continue to take a gradual approach, guided by incoming data.”
The next rate decision is due on September 5.