Bank of Canada raises interest rate for first time in 6 months

OTTAWA-The Bank of Canada on Wednesday raised its benchmark interest rate by a quarter of a percentage point to 1.50% in response to solid economic data and expectations that exports and business investment will continue to grow.

Poloz recently said the impacts of the U.S.

At 2.11 p.m. EDT, the Canadian dollar was trading 0.7 per cent lower at $1.3206 to the greenback, or 75.72 US cents.

The Bank of Canada expectedly increased their key interest rate by 25bps to 1.50%, marking the fourth rate hike in the last 12-months, which resulted in the Canadian dollar climbing on the news.

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The rate hike was the central bank's first interest rate move in six months and lifted the trend-setting rate to 1.5%, up from 1.25%. This is contributing to financial stresses in some emerging market economies. Temporary factors are causing volatility in quarterly growth rates: the Bank projects a pick-up to 2.8 per cent in the second quarter and a moderation to 1.5 per cent in the third.

At the same time, household spending will represent a smaller and smaller share of overall growth due to the dampening effects of higher interest rates and stricter mortgage rules, it said.

However, the negative blow of the trade policies recently put in place are to be largely offset by the positives for Canada from higher oil prices, which are above US$73 per barrel, and the stronger USA economy, the bank said.

Governor Stephen Poloz said that while it was not easy for policymakers to set aside "all the talk" about trade, the bank hiked rates amid increasing confidence in its outlook, with Canada's economy firing on all cylinders despite the tensions. The Bank estimates that underlying wage growth is running at about 2.3 per cent, slower than would be expected in a labour market with no slack. -Canada trade dispute would figure prominently in the bank's decision-making process for today's rate announcement.

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