Canada maintains key lending rate at 1.5 percent

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OTTAWA, Sept 6, 2018 (BSS/AFP) – Canada’s central bank maintained its key
lending rate at 1.5 percent on Wednesday, despite inflation pressures it
predicts are likely to dissipate in the coming months.

The Bank of Canada, however, said higher interest rates soon “will be
warranted to achieve (its) inflation target,” which is in line with analysts’
expectations.

Going forward, the bank said it would continue to monitor Canadians’
reaction to higher interest rates, as well as the course of North American
Free Trade Agreement negotiations scheduled to resume in Washington on
Wednesday.

The bank last increased interest rates in July by 25 basis points, after a
previous hike in January — bringing rates to the highest level in a decade.

“An October rate hike looks highly likely if, as we expect, we have the
makings of a NAFTA deal by then,” commented CIBC Economics analyst Avery
Shenfeld.

In July, inflation moved up to three percent, above the central bank’s two
percent target.

But the bank said it expects inflation “to move back towards two percent
in early 2019,” as gas prices pull back from recent highs.

It noted that Canada’s economy has been operating near capacity for some
time, while wage growth remains moderate.

“Elevated trade tensions remain a key risk to the global outlook and are
pulling some commodity prices lower,” the bank noted.

Uncertainty about trade policies continue to weigh on businesses, but
business investment and exports have been “growing solidly for several
quarters,” it said.

Activity in the housing market, meanwhile, is beginning to stabilize as
households adjust to higher interest rates and changes in housing policies.

Continuing gains in employment and income are helping to support
consumption.

“As past interest rate increases work their way through the economy,
credit growth has moderated and the household debt-to-income ratio is
beginning to edge down,” the bank also noted.

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