Bank of Canada: October 2018 interest rate decision

Bank
of Canada Governor Stephen Poloz speaks during a news conference
in Ottawa, Ontario, Canada, October 19, 2016.
Chris Wattie/Reuters

The Bank of Canada is widely
expected to raise short-term borrowing costs Wednesday and leave
the door open to further tightening as economic growth
remains relatively strong and as uncertainty around US trade
policy eases.

Economists polled by Reuters
forecast the central bank will increase its benchmark interest
rate by 25 basis points to 1.75%, marking the fifth hike since
the summer of 2017.

Canada’s economy has been growing
steadily, with gross domestic product accelerating in the second
quarter at the fastest pace in a year, and is expected to
continue to pick up. Ottawa reached a trade deal with the US and
Mexico last month, all but putting an end to NAFTA tensions that
had raised outlook concerns.

“The risk of a significant
increase in trade tensions with the US, such as the US
withdrawing from NAFTA or imposing auto tariffs on Canada, has
been all-but eliminated,” Paul Ashworth, chief North America
economist at Capital Economics, wrote in a research note.

The central bank had cited trade
uncertainty at its last policy announcement in September, saying
it was “closely monitoring” the course of negotiations and their
impact on the inflation outlook.

With BOC officials
emphasizing

a gradual and data-dependent
approach

to monetary
policy in recent speeches, economists are eyeing another increase
in January and three more throughout the rest of 2019.

But analysts at the Bank of
America Merrill Lynch said they expect the Bank of Canada could
move more quickly than expected as headline inflation remains
above target and as the Federal Reserve continues
tightening.

“Stronger activity will put more
pressure on prices, leading the BoC to pick up the pace of
hikes,” the analysts said.

The


Canadian dollar

was
mostly flat ahead of the announcement, with most economists
predicting the increase had already been priced in.