The Bank of Canada (BoC) today announced it will increase its benchmark key overnight lending rate by 0.25% to 1.5%, thus likely causing major financial institutions to raise their prime rate by same.
The BoC is taking an opportunity to raise the rate now in order that it continue to build its tool chest to reduce the rate in future when needed. Rates have been very low for a long time – to give perspective on this: BoC’s key rate is exactly 0.5% higher than it was nearly 8 years ago in September of 2010. There has been movement up and down, netting to a half point difference over that eight years.
Canada’s economy showed unanticipated weakness with sluggish inflation and retail sales in the second quarter. Having said this, April showed much strength with GDP expanding 0.1 per cent from the prior month. With the last review of the economy before Wednesday’s rate decision, Statistics Canada reported the country added almost 32,000 jobs in June.
The strong GDP number was enough to affirm a rate hike by the BoC even though there are dark clouds looming with potential trade wars instigated by the Trump administration.
Many economists believe that we will not see any further movement in the rate, at least not up, for the remainder of the year.