OTTAWA, Jan. 17 (Xinhua) — The Bank of Canada announced Wednesday that it raises its key interest rate by a quarter percentage-point to 1.25 percent.
“Recent data have been strong, inflation is close to target and the economy is operating roughly at capacity,” the bank said in the announcement.
This is the third time in six months that the Canadian central bank raised its benchmark rate after the Canadian economy is improving. The bank increased its rates in July and September in 2017.
However, the bank expressed growing concern about the future of the North American Free-Trade Agreement (NAFTA), which will hold its sixth round of talks in Montreal next week.
The bank said speculation the United States may pull out of the deal is already holding back business investment in Canada and it poses a threat to future exports.
“Uncertainty about the future of NAFTA is weighing increasingly on the outlook,” the bank said.
The bank predicted economic growth will slow significantly to 2.2 percent this year and 1.6 percent in 2019, down from an estimated pace of three percent in 2017.
Trade uncertainty is already affecting investment by the United States and European companies, which the bank said have been making fewer new investments in Canada since mid-2016. The bank estimates that trade uncertainty will cut business investment over the next two years by two percent.
The threat of greater protectionism remains the most significant risk to Canada’s export-dependent economy, the bank said. The bank pointed out that roughly half of Canada’s exports to the United States benefited from preferential NAFTA tariffs in 2016. The United States buys about three-quarters of Canada’s exports.