Brace for more rate hikes: BoC

The Bank of Canada raised interest rates on Wednesday as expected and signaled more rate hikes to come, saying that while mounting trade tensions with the United States were a concern, their impact on growth and inflation looked modest so far.

The fourth rate increase since July 2017 comes as Canada tries to cope with the pressures of rising inflation and solid job growth, despite an increasingly hostile U.S. trade policy that could stifle demand from Canada's largest export market.

Governor Stephen Poloz said that while it was not easy for policymakers to set aside "all the talk" about trade, the bank hiked rates amid increasing confidence in its outlook, with Canada's economy firing on all cylinders despite the tensions.

The bank's apparently calm view of the trade risk boosted the Canadian dollar to its strongest level in nearly four weeks, and economists said they expected the central bank to hike again by year end.

The rate increase, by a quarter of a percentage point, took the bank's overnight interest rate to 1.50%, still well below the "neutral" rate of 2.5-3.5% the bank sees as a sweet spot for monetary policy, where it neither boosts nor restrains growth.

Poloz also signaled he was comfortable with how financial markets were interpreting the central bank's message, noting the hike was "highly anticipated." The bank had been criticized for a surprise rate hike last September.

A survey of economists last week showed a most had expected the increase.

The bank said U.S. steel and aluminum tariffs imposed in June and retaliatory countermeasures by Canada in July would trim exports, imports and economic growth, besides boosting inflation, but strong global demand and higher commodity prices were offsetting limitations from the tariffs.