The Bank of Canada is seen in Ottawa on Wednesday, May 30, 2018. THE CANADIAN PRESS/Sean Kilpatrick

Bank of Canada keeps key interest rate target on hold at 1.25 per cent

The Bank of Canada held its key interest rate target, but hinted that rate hikes

The Bank of Canada kept its key interest rate target on hold Wednesday, but hinted that rate hikes could be coming as it noted the Canadian economy was a little stronger than expected in the first quarter.

The central bank held steady its target for the overnight rate — a key financial benchmark that influences the prime lending rates at the country’s big banks — at 1.25 per cent.

A statement released with the decision noted that exports were more robust than forecast as data on imports of machinery and equipment suggest continued recovery in investment, but also pointed to softer real estate activity into the second quarter as the market ”continues to adjust to new mortgage guidelines and higher borrowing rates.”

“Going forward, solid labour income growth supports the expectation that housing activity will pick up and consumption will continue to contribute importantly to growth in 2018,” it said.

The central bank also said global economic activity remains broadly on track, but added that ongoing uncertainty about trade policies is dampening global business investment and stresses are developing in some emerging market economies.

It noted that recent developments have reinforced its view that higher rates will be warranted to keep inflation near its target, but added that it will take a gradual approach and be guided by the economic data.

“In particular, the bank will continue to assess the economy’s sensitivity to interest rate movements and the evolution of economic capacity,” it said.

Related: Bank of Canada holds benchmark interest rate as economic growth moderates

Related: Bank of Canada says Canadians owe $2 trillion as it mulls next rate hike

Economists had predicted the Bank of Canada would keep its key rate on hold Wednesday, but many have suggested the rate may be headed higher later this year.

The central bank’s statement had “a hawkish tone, suggesting the next rate hike is not far off,” said TD Bank senior economist Brian DePratto.

“All told, the positives seem to outweigh the negatives,” DePratto wrote in a note to clients.

“Gone was the reference to ‘caution’ that typified the last few statements. Today’s statement instead chose the term ‘gradual’ to describe the approach to policy adjustments. Importantly, interest rate sensitivity and the evolution of economic capacity remained areas of particular focus.”

The central bank’s decision to keep its trend-setting rate on hold came as inflation sits above the two per cent midpoint of its target range of one to three per cent and core inflation has crept past the two per cent mark for the first time since 2012.

It noted that inflation will likely be a bit higher in the near term than was forecast in its April monetary policy report due to recent increases in gasoline prices, but that it will look through the transitory impact of the fluctuations at the pump.

The central bank has raised its key rate three times since last summer, increases that have prompted the big Canadian banks to raise their prime rates which are used to set the rates charged for variable-rate mortgages and other variable-rate loans.

Its next scheduled interest rate decision is set for July 11 when it will also update its outlook for the economy and inflation in its monetary policy report.

Craig Wong, The Canadian Press

Like us on Facebook and follow us on Twitter.

Just Posted

G3 eyes Stettler for primary grain elevator

Public open house set for Thursday

RCMP ask public’s help in finding trailer stolen from Castor Bottle Depot

Along side of trailer are words ‘Squirrel Creek’ in small yellow letters

Stettler RCMP aims to improve safety

Participates in Central Alberta District Crime Reduction Symposium in Camrose

Round bale falls off truck, hits a semi on Hwy 21

RCMP ask public for any dash cam video from Nov. 10 near Camrose

First Nation marks ‘milestone’ land deal at Alberta ceremony

Lubicon Lake First Nation Chief Billy-Joe Laboucan signed treaty last month

Black Panther claw, Power Rangers blade among 2018’s ‘worst toys,’ safety group says

The World Against Toys Causing Harm organized announced its 46th annual list in Boston on Tuesday

UPDATE: Red Deer RCMP arrest man involved in fatal hit and run

RCMP flew to Nipawin, Sask. to arrest Tosh Vertraeten

What now for Calgary, Canada and Olympic Games after 2026 rejection?

Calgary, along with the 2010 Winter Games in Vancouver and Whistler, B.C., made Canada a player in the international sport community

Naked man arrested for impaired driving

The man allegedly fled the scene of a collision wearing only a sheet. Plus other Ponoka RCMP briefs

Sex-misconduct survey excludes vulnerable military members: Survivors’ group

But It’s Just 700 says recent research has shown young military members and those on training are among those most at risk for sexual violence

Many child killers have been placed in Indigenous healing lodges according to stats

As of mid-September, there were 11 offenders in healing lodges who had been convicted of first- or second-degree murder of a minor

Expect no quick end to Canada-wide cannabis shortages, producers warn

Provinces including British Columbia, Alberta have all reported varying degrees of shortages

Canada Post strike having ‘critical’ impact on retailers, eBay tells PM

Canada Post says it is now facing an unprecedented backlog of shipments, largely as a result of strikes

Most Read