Bank of Canada keeps key interest rate steady at 1.25% but eyes future hikes

Bank of Canada Governor Stephen Poloz held Canada's trend-setting interest rate steady at 1.25 per cent on Wednesday, March 7, 2018, citing growing uncertainty over international trade. Chris Young/CP

The Bank of Canada kept its key interest rate on hold at 1.25 per cent on Wednesday, as it pointed to a climate of broadening, important unknowns around trade.

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In explaining its decision to maintain its benchmark rate steady, the central bank noted that recent trade policy developments are a key source of uncertainty for the Canadian and global outlooks. U.S. President Donald Trump recently added threats of steel and aluminum tariffs to an already uncertain context for Canada that includes concerns over NAFTA’s renegotiation and competitiveness following tax-cut announcements south of the border.

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Donald Trump’s top economic adviser Gary Cohn quitting post over steel tariffs – Mar 6, 2018

The Bank of Canada also noted that fourth-quarter growth was weaker than expected, largely due to higher imports, and that it’s still assessing impacts on housing markets from new policies, including stricter mortgage rules that took effect Jan. 1.

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“Cooling growth left little reason for central bankers to rush another rate hike, but U.S. steel and aluminum tariffs sealed the deal,” CIBC economist Royce Mendes, wrote in a note to clients shortly after the announcement.

U.S. President Donal Trump announced last week plans to impose tariffs of 10 per cent and 25 per cent on steel and aluminum imports respectively. The move has sparked fears of a global trade war, as other countries consider retaliatory measures.

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However, the central bank also noted that global growth continues to be solid and broad-based, the economy is running near capacity, inflation is close to target and wage growth has improved, though that remains below where many expect it should be.

Governor Stephen Poloz was widely expected to hold off moving the rate because of weaker economic numbers in recent weeks and the growing trade uncertainty.

Though analysts disagree on how many more times the Bank of Canada will raise rates this year, most of them believe it will implement at least one more hike before the end of 2018.

The next interest rate announcement is scheduled for April 12.

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– With files from Global News national online money reporter Erica Alini

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