Rate rise was largely expected.
Highlights from the rate statement.
- Bank of Canada drops reference to gradual approach to hikes
- Rates will need to rise to a neutral stance
- housing market stabilizing, vulnerabilities edging lower
- sees CPI remaining year 2% through 2020 after summer spike
- household spending healthy on solid income growth
- Bank of Canada expects 2.1% GDP growth in 2018, 2.1% in 2019 and 1.9% in 2020
- boosts investment and export forecast on USMCA and LNG deals
- pace of hikes depend on economy adjusting to higher rates
- economy near capacity, composition of growth more balanced
- trade tensions between US and China could have significant and lasting impact on global economy
- estimates US – China tariffs will lower real GDP by 0.2% in US by 0.5% in China by the end of 2020
- net effect of China – US trade tensions on Canada negative but small. Impact on global economy more severe
- higher rates will be needed to achieve inflation target
- drops previous language about gradual rate hikes, says in determining appropriate pace of increases will continue to take into account how economy is adjusting to higher rates
- US-Mexico Canada trade deal will reduce trade policy uncertainty in North America
- investment and exports will be dampened by recent declines in commodity prices, as well as competitiveness challenges and limited transportation capacity
- raises Q3 growth forecast to 1.8% from 1.5%. Sees Q4 at 2.3%
- temporary factors pushing up inflation should fade in early 2019
