Bank of Canada raises benchmark interest rate to 1.5 per cent

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It was the central bank's fourth rate increase in the last 12 months.

Canadian banks say they will raise their prime lending rate after the Bank of Canada increased its overnight lending rate to financial institutions.

Poloz made the call even though he warned the economy should brace for larger impacts from mounting trade uncertainty.

Poloz recently said the impacts of the U.S.

The bank's relatively sanguine view of the trade risk boosted the Canadian dollar to its strongest in almost four weeks, and economists said they expected the central bank to hike again by year end.

CPI and the Bank's core measures of inflation remain near 2 per cent, consistent with an economy operating close to capacity. The bank had been criticized for a surprise rate hike last September.

"The escalation of trade actions was quite a part of our discussions, but we agreed very early on that it was not going to be the basis for our decision", Poloz told a news conference. According to ratehub.ca, a mortgage worth $400,000 amortized over 25 years with a 5-year variable rate of 2.50 per cent, will now cost $50 per month or $600 per year.

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Along the way, the bank will have to keep close watch on another trade-related unknown that many believe would inflict far more damage on the economy: USA duties on the automotive sector.

"We need to base our decision on what we actually know", he said.

It was reasonable to think at the beginning of the year that the unknowns surrounding NAFTA talks could pause business investment and lead to a decline in activity, he said.

Aside from the USA trade threat, there isn't much to keep the Bank of Canada on hold, added Brett House, deputy chief economist for Scotiabank Economics. It warns that "escalating trade tensions pose considerable risks to the outlook" at the global level.

Many economists anticipate several more hikes this year and in 2019.

So what does the rate hike mean for Canadians?

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. It also said underlying wage growth has been weaker than what would normally be expected in a tightened job market. CPI inflation is expected to edge up further to about 2.5 per cent before settling back to 2 per cent by the second half of 2019.

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