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Bank of Canada raises policy rate by 25 bps to 1.75%

In a widely expected decision, the Bank of Canada has announced its decision to hike its policy, overnight, rate by 25 basis points to 1.75%. Investors are now waiting for the Governor Poloz’s press conference.  Below are the key takeaways from the official statement.  

  • The global economic outlook remains solid. The US economy is especially robust and is expected to moderate over the projection horizon, as forecast in the Bank’s July Monetary Policy Report (MPR).
  • The new US-Mexico-Canada Agreement (USMCA) will reduce trade policy uncertainty in North America, which has been an important curb on business confidence and investment.
  • However, trade conflict, particularly between the United States and China, is weighing on global growth and commodity prices.
  • CPI inflation dropped to 2.2 per cent in September, in large part because the summer spike in airfares was reversed.
    • Other temporary factors pushing up inflation, such as past increases in gasoline prices and minimum wages, should fade in early 2019.
    • Inflation is then expected to remain close to the 2 per cent target through the end of 2020.
  • Governing Council agrees that the policy interest rate will need to rise to a neutral stance to achieve the inflation target.
  • In determining the appropriate pace of rate increases, Governing Council will continue to take into account how the economy is adjusting to higher interest rates, given the elevated level of household debt.
  • In addition, we will pay close attention to global trade policy developments and their implications for the inflation outlook.    

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