Bank of Canada says NAFTA uncertainty behind latest interest hike

By HUB SmartCoverage Team on January 17th, 2018

For the third time in the last 12 months, the Bank of Canada has raised its key lending rate. This time by .25%, bringing it up to a total of 1.25% as of Wednesday.

The Bank of Canada’s key lending rate impacts retail banks and the rates they offer to their customers. Mortgage rates, savings accounts, guaranteed investment certificates, credit cards and the like get hit by interest rate changes.

CBC reports that this “move means borrowers can expect to pay more, but savers can expect to earn more, too.”

A news conference is expected before noon today, where the bank will offer more details as to their reasoning.

Analysists point to a growing GDP, job market and cost of living as potential factors of the hike, while the bank’s continued worry concerning the future of the NAFTA agreement could have also spurred the increase.

"In the accompanying Monetary Policy Report, the bank nudged up its expectations for how the economy will perform this year and next. The bank now expects Canada's economy to expand by 2.2 per cent this year and 1.6 per cent in 2019. Previously the bank was anticipating 2.1 and 1.5 per cent growth." 

Historically, the interest rate is still relatively low; in 2007 and 2008 the rate rose to nearly 5% following a global recession. It took the bank another couple of years to restabilize.

More recently, the automotive industry was another Canadian sector to voice concern about the looming NAFTA changes. They cited the probability of declining demand if restrictions are proposed on Canadian auto-parts exports.

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