'There are worries ahead': Experts react to Bank of Canada's rate hike

Bank of Canada Governor Stephen Poloz speaks at a press conference in Ottawa on Thursday

The fourth rate increase since July 2017 comes as Canada grapples with the pressures of rising inflation and solid job growth despite an increasingly hostile USA trade policy that could choke off demand from Canada's largest export market.

The central bank increased its benchmark interest rate to 1.5 per cent, up from 1.25 per cent, marking the fourth increase over the last 12 months.

Another rate hike today?

Poloz also signaled he was comfortable with how financial markets were interpreting the central bank's message, noting the hike was "highly anticipated".

"The escalation of trade actions was quite a part of our discussions, but we agreed very early on that it was not going to be the basis for our decision", Poloz told a news conference.

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CPI and the Bank's core measures of inflation remain near 2 per cent, consistent with an economy operating close to capacity.

The central bank's rate decision arrives as Canada faces significant trade-related uncertainties, including stalled NAFTA talks, USA steel and aluminum tariffs and the threat of more duties on the automotive sector.

The decision, a move that will likely prompt Canada's big banks to raise their prime rates, arrived in the middle of a trade dispute between Canada and the United States that's expected to hurt both economies.

Canadian businesses must also contend with the uncertainty surrounding the hard renegotiation of the North American Free Trade Agreement, for which talks have stalled.

Scott Hannah says higher interest rates have also helped to cool down the country's real estate markets, helping future homeowners. The Bank estimates that underlying wage growth is running at about 2.3 per cent, slower than would be expected in a labour market with no slack. Temporary factors are causing volatility in quarterly growth rates: the Bank projects a pick-up to 2.8 per cent in the second quarter and a moderation to 1.5 per cent in the third.

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