2018.05.3100:22:00UTC+00BOC Paves Way for Further Interest Rate Hikes

Canada's central bank is opening the path fore more rate increases in the second half of the year as the country's economy grows against capacity constraints and inflation stays near its highest level in seven years.

Bank of Canada Governor Stephen Poloz stood pat on rates for a third consecutive decision on Wednesday, but issued an upbeat assessment of the economy and omitted some cautious language in the central bank's statement. Canada's currency and bond yields edged up after the statement.

The adjustments indicates policy makers are becoming more confident in the resiliency of the present rate of growth and the economy's capacity to cope with higher borrowing costs, even as household debt levels continued to climb. The BoC has already hiked rates three times since the middle of 2017, part of an initiative to revert to historically low borrowing costs to more normal conditions.

In BoC's announcement, the central bank kept the benchmark rate unchanged at 1.25 percent and restated its view that higher interest rates will be warranted. But it also mentioned an “over time” qualifier that may indicate a faster rate of increases.

The BoC also omitted the language that had appeared in the last five statements regarding continuing to be cautious on any future policy changes, replacing it with a promise to take on a “gradual approach”. They also removed another line regarding the need to keep some “monetary accommodation” implemented over time. There was also no reference to labor slack.