That would follow its last two quarter-point hikes in July and September.
The next rate decision is expected on March 7. On the other hand, the bank predicted that Canada will see a small benefit from the recent USA tax changes thanks to increased demand.
The bank rate has an impact what Canadians pay lenders for things like mortgages and personal loans. The level of business investment is expected to be 2% lower by 2020 than what would otherwise be the case due to trade-policy uncertainty, the Bank of Canada estimated.
The federal court in Manhattan is home to a wide variety of private litigation accusing banks of conspiring to rig rate benchmarks, markets such as U.S. Treasuries, and prices for commodities such as gold and silver. We concur with the Bank's assessment that "some accommodation will likely be needed to keep the economy operating close to potential and inflation on target" and we believe that the Bank will need to slow the pace of rate hikes in 2019 (we now have the overnight rate holding at 2.25%, below the 3.00% mid-point of the Bank's estimated neutral rate range, largely reflecting the impact of higher rates on high household debt).
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Exports have been weaker than anticipated, but are still expected to contribute a larger share of Canada's growth, the bank said.
In sounding a cautious tone on the future of the North American Free Trade Agreement as it raised rates for the third time in seven months, taking borrowing costs to their highest level since 2009, the bank accomplished the so-called dovish hike that many analysts had predicted. Growth in advanced economies is projected to be stronger than in the Bank's October Monetary Policy Report(MPR).
The output gap is now slightly positive, so quarterly growth rates from here have to average below 2 per cent (the Bank has 1.8 per cent for the average of the next four quarters) to avoid an inflationary overheating.We share the Bank of Canada's view that higher rates will be needed over time to stay on that path, but they won't come quite as fast and furious as the market was starting to think. Also, the BoC expects the economy to expand 1.6 percent in 2019. In this respect, capital investment, firm creation, labour force participation, and hours worked are all showing promising signs. The bank estimates that trade uncertainty will cut business investment over the next two years by two percent.
The gap between the two-year yield and its USA counterpart widened by 1.7 basis points to a spread of -26.2 basis points, its widest since December 18. The next announcement is scheduled for March 7. The report also said new, or "greenfield", foreign direct investment into Canada has fallen since mid-2016 - a possible impact of the trade uncertainty.