Bank of Canada delivers another hike, key interest rate rises to 1.5%

Image of USDCAD daily chart

US tariffs on the auto sector's integrated cross-border supply chains would have "large impacts on investment and employment", the Bank of Canada warned Wednesday in its accompanying monetary policy report.

The Canadian dollar weakened to a more than one-week low against its USA counterpart on Wednesday as broad-based gains for the greenback offset an interest rate hike by the Bank of Canada and the prospect of further monetary policy tightening.

BNN Bloomberg speaks with PIMCO's Ed Devlin about his take on the Bank of Canada's decision to raise rates amid ongoing economic challenges the country is facing.

At 2.11 p.m. EDT, the Canadian dollar was trading 0.7 per cent lower at $1.3206 to the greenback, or 75.72 USA cents.

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The Bank of Canada raised its benchmark interest rate Wednesday in an economy that it predicts will remain resilient even as it faces an even bigger bite from deepening trade tensions.

Poloz also signaled he was comfortable with how financial markets were interpreting the central bank's message, noting the hike was "highly anticipated". Inflation ran at a 2.2-per-cent pace in May, slightly above the Bank's target of 2 per cent. Household spending is being dampened by higher interest rates and tighter mortgage lending guidelines. In particular, the Bank is monitoring the economy's adjustment to higher interest rates and the evolution of capacity and wage pressures, as well as the response of companies and consumers to trade actions.

The bank, however, noted in its report that despite "healthy" labour market conditions, employment growth and average hours worked have slowed down compared to last year's surge.

Poloz has followed a cautious, data-dependent approach in recent months and he hasn't touched the rate since raising it in January, a move that came after two earlier increases in the second half of 2017.

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