The Bank of Canada today raised its key lending benchmark rate a quarter point to 1.25 per cent. This is “an historically low setting that nonetheless will seem high to anyone who got used to post-crisis borrowing costs that were closer to zero.” per Kevin Carmichael of the Financial Post.
The BoC has acknowledged that the economy is running at or near full capacity and that the unemployment rate is at a four decade low.
The outlook for economic growth is not perfect for Canada by any means and further rate increases are not a certainty at this point. The BoC predicts economic growth in 2018 to be 2.2% and 1.6% in 2019. After 3.3% growth in 2017, increases made now may need to be adjusted down in the mid to longer term.
The BoC believes that the “underlying fundamentals are strong” except for the uncertainty of trade talks with the US.
We believe that Canada’s economy will continue to fight the problem of raising rates which raise currency strength which in turn makes it difficult for Canada to increase exports. Until Canada deals with its overbearing tax and labor productivity issues, it will continue to need lower interest rates to continue modest economic growth rates.