OTTAWA—The Bank of Canada is raising its trend-setting interest rate this morning for the third time since last summer.
The central bank says the recent run of strong economic data is a key driver behind its decision to hike the rate to 1.25 per cent, up from one per cent.
In a statement, the bank says Canada’s solid job creation has led to healthier-than-anticipated consumption and residential investment.
Looking ahead, it predicts business investment and exports to contribute more to economic growth, while it expects consumption and residential investment contribute less given the higher interest rates and stricter mortgage rules.
The Bank of Canada also says rising uncertainty about the future of the North American Free Trade Agreement is continuing to cloud the outlook and create a drag on the economy—but it predicts Canada will see a small benefit from the recent U.S. tax changes thanks to increased demand.
The bank says the economy will likely need it to raise its benchmark even higher over time, however, it will remain cautious when considering future increases by assessing incoming data such as the economy’s sensitivity to rates.