The Bank of Canada raised its benchmark interest rate Wednesday in an economy that it predicts will remain resilient even as it faces an even bigger bite from deepening trade tensions.

The rate hike was the central bank91裸聊视频檚 first interest rate move in six months and lifted the trend-setting rate to 1.5 per cent, up from 1.25 per cent. It was the bank91裸聊视频檚 fourth rate increase over the last 12 months.

The decision, a move that will likely prompt Canada91裸聊视频檚 big banks to raise their prime rates, arrived in the middle of a trade dispute between Canada and the United States that91裸聊视频檚 expected to hurt both economies.

The bank took the step even as it predicts larger impacts from the widening trade uncertainty, particularly after the United States imposed steel and aluminum tariffs on Canada and Ottawa91裸聊视频檚 retaliatory measures. The tariff fight, the bank estimated, will shave nearly 0.7 per cent from Canada91裸聊视频檚 economic growth by the end of 2020.

However, the bank expects the negative blow of the trade policies recently put in place to be largely offset by the positives for Canada from higher oil prices and the stronger U.S. economy.

91裸聊视频淎lthough there will be difficult adjustments for some industries and their workers, the effect of these measures on Canadian growth and inflation is expected to be modest,91裸聊视频� the bank said in a statement.

But in addition to steel and aluminum tariffs, Canada is facing a significant trade-related unknown that many believe would inflict far more damage on the economy: U.S. duties on the automotive sector

U.S. tariffs on the auto sector91裸聊视频檚 integrated cross-border supply chains would have 91裸聊视频渓arge impacts on investment and employment,91裸聊视频� the Bank of Canada warned Wednesday in its accompanying monetary policy report.

The bank, however, didn91裸聊视频檛 quantify the possible effects of auto tariffs on Wednesday. Governor Stephen Poloz has signalled in the past that he91裸聊视频檚 focused on data he can measure rather than the impacts of trade policies that have yet to materialize.

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

The Bank of Canada also has its eye on how widening global trade disputes, including an intensifying battle between the U.S. and China, will affect the world91裸聊视频檚 economy. It warns that 91裸聊视频渆scalating trade tensions pose considerable risks to the outlook91裸聊视频� at the global level.

Even with the trade issues, the Bank of Canada is now predicting slightly stronger growth for Canada over the next couple of years, according to updated projections it released Wednesday in its quarterly monetary policy report.

It expects real gross domestic product to grow 2.2 per cent in 2019, up from its April call of 2.1 per cent, and by 1.9 per cent in 2020, compared with its previous prediction of 1.8 per cent. The economy91裸聊视频檚 growth projection for this year remains at two per cent, the bank said.

Looking ahead, the bank predicts Canadian growth will continue to see bigger contributions from exports and business investment, which were both stronger than expected in the first three months of the year.

At the same time, household spending will represent a smaller and smaller share of overall growth due to the dampening effects of higher interest rates and stricter mortgage rules, it said.

Leading up to the announcement Wednesday, Poloz was widely expected to raise the interest rate following a run of healthy economic numbers, including the Bank of Canada91裸聊视频檚 own survey on business sentiment, tightened job markets and growth in wages.

Moving forward, the bank said it expects higher interest rates will be necessary over time to keep inflation near its target, however, it intends to continue along a gradual, data-dependent approach.

The country91裸聊视频檚 inflation rate is expected to rise to 2.5 per cent 91裸聊视频� above the two per cent mid-point of the bank91裸聊视频檚 target range 91裸聊视频� due to temporary factors such as higher gasoline prices before settling back down to two per cent in the second half of 2019.

Andy Blatchford, The Canadian Press

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