The bank's latest monetary policy report, also released Wednesday, said that trade-policy uncertainty is expected to lower investment by two per cent by the end of 2019.
Anticipating Wednesday's rate hike by the Bank of Canada, all of Canada's Big Six banks had already raised their listed five-year mortgage rates by 15 basis points to 5.14 per cent, and that is going to make it all the more hard for home buyers to qualify for mortgages, particularly with the new stricter guidelines. While temporary factors such as energy price swings will generate near-term noise, inflation is likely to trend close to the midpoint of the central bank's 1 percent to 3 percent band over the forecast horizon, stated TD Economics.
While real GDP growth is expected to slow to 2.2 per cent in Canada in 2018 and 1.6 per cent in 2019, growth is expected to remain above potential through the first quarter of 2018, before slowing.
Consumption and residential investment have been stronger than anticipated, reflecting strong employment growth.
The price of oil, one of Canada's major exports, rose ahead of the release of USA petroleum data that was expected to show a ninth straight weekly drawdown in crude inventories.
Canada's biggest lenders have raised their prime lending rates on the same day the country's central bank moved its benchmark interest rate a quarter percentage point higher.
Underlying economic fundamentals at home and overseas have strengthened, and would otherwise suggest a strong pickup in business investment and exports, the bank said. A hike this week would make it harder for most borrowers to qualify for a new mortgage.
"Recent data have been strong, inflation is close to target and the economy is operating roughly at capacity", the bank said in the announcement. NAFTA uncertainty hangs over the outlook, with the Bank explicitly downgrading the outlook for business investment and trade to account for the impact of negotiations.
Rate hikes from the central bank can add up fast for Canadians with variable rate mortgages.
As for trade, the central bank said the Nafta risk would hinder Canadian exporters' ability to benefit from an improving global outlook.
The bank slightly increased its predictions for 2018, up to 2.2 per cent from 2.1 per cent.
Economist Frances Donald with Manulife agrees with that assessment, telling CBC News in an interview that while the market was expecting as many as three hikes this year, the situation is fluid. The statement raised questions about how quickly the bank will raise the rate from here.
What's more, despite the positive run of labour market data, wage growth remains weaker than the Bank had expected.