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'There are worries ahead': Experts react to Bank of Canada's rate hike

11 July 2018

The Bank of Canada is also releasing its quarterly update of projections, which predicts slightly stronger growth in both 2019 and 2020, compared with its outlook in April.

"Despite hiking rates today, the Bank of Canada is in no rush to continue pushing rates higher given the uncertainties surrounding trade, lingering concerns about housing and household debt, and renewed belief that there's some labour market slack".

Money markets see a almost 70 per cent chance of further Bank of Canada tightening by December.

The central bank said it expects the Canadian economy to expand by 2 per cent per year on average between 2018 and 2020, noting that recently implemented tariffs on steel and aluminium will likely have only "modest" effects on growth and inflation. This effect is now judged to be larger, given mounting trade tensions.

The July projection also incorporates the estimated impact of tariffs on steel and aluminum recently imposed by the United States, as well as the countermeasures enacted by Canada.

"This should be consistent with a more firm pricing for another hike this year", said Alvise Marino, FX strategist at Credit Suisse in NY.

Poloz has followed a cautious, data-dependent approach in recent months and he hasn't touched the rate since raising it in January, a move that came after two earlier increases in the second half of 2017.

National Bank of Canada experts wrote in a note to clients Wednesday that when it comes to future hikes Poloz may choose to err on the side of caution because of the threats of auto tariffs, which they warned, if applied, would have "unambiguously devastating economic impacts", particularly in Ontario.

"There are worries ahead, growth hasn't been stellar, but the backdrop has been just good enough for the Bank of Canada to nudge rates a quarter point higher".

'There are worries ahead': Experts react to Bank of Canada's rate hike