The Bank of CanadaB次元官网网址檚 decision to leave its interest rate unchanged Wednesday could be just a brief pause that comes as it carefully follows the unpredictable twists in the countryB次元官网网址檚 trade talks with the United States.

The central bank kept its benchmark at 1.5 per cent, but many experts predict another increase could arrive as early as next month.

In a statement Wednesday, the Bank of Canada said more hikes should be expected thanks to encouraging numbers for business investment, exports and evidence that households are adjusting to pricier borrowing costs.

The bank, however, also made a point of saying itB次元官网网址檚 closely watching the renegotiation of the North American Free Trade Agreement and other trade policy developments, which could have negative impacts on the Canadian economy. ItB次元官网网址檚 particularly concerned with the potential implications for inflation.

Last week, U.S. President Donald Trump announced he had reached a bilateral trade agreement with Mexico that would replace the three-country NAFTA. He put pressure on Canada to join the U.S.-Mexico deal, but after fresh talks restarted last week Ottawa and Washington have so far been unable to reach an agreement.

Trump notified Congress last Friday of his intention to sign a trade agreement in 90 days with Mexico B次元官网网址� and Canada, if Ottawa decides to join them. If a deal canB次元官网网址檛 be reached, the president has also repeatedly threatened to impose punishing tariffs on Canadian auto imports.

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Frances Donald, head of macroeconomic strategy for Manulife Asset Management, said the Bank of CanadaB次元官网网址檚 explicit mention of NAFTA in WednesdayB次元官网网址檚 statement suggests the negotiations have become even more important around the governing councilB次元官网网址檚 table.

B次元官网网址淭heyB次元官网网址檙e sending a message that everything looks as plannedB次元官网网址� What that says to me is that an October rate hike is still certainly in play,B次元官网网址� Donald said about the

However, she said the NAFTA reference gives the Bank of Canada options to possibly stay on hold next month, particularly if trade talks B次元官网网址� and the outlooks for the economy and inflation B次元官网网址� deteriorate.

Governor Stephen Poloz, she added, has been B次元官网网址漟airly agnosticB次元官网网址� on the outlook for NAFTA. She said heB次元官网网址檚 pointed to potential negatives as well as positives, while the stressing everything is hypothetical until something is decided.

Benjamin Reitzes of BMO Capital Markets wrote in a note to clients that WednesdayB次元官网网址檚 statement makes it clear the NAFTA talks are biggest issue for markets and the Bank of Canada at the moment.

B次元官网网址淭hereB次元官网网址檚 big time risk here, but most are still expecting a deal to get done,B次元官网网址� Reitzes wrote as he referenced the apparent month-end deadline for NAFTA negotiations.

B次元官网网址淎ssuming all goes well with NAFTA (perhaps a big assumption) and the data over the next seven weeks, an October rate hike still looks like a reasonable expectation.B次元官网网址�

Poloz has raised the rate four times since mid-2017 and his most-recent quarter-point increase came in July. The next rate announcement is scheduled for Oct. 24.

The Bank of Canada said Wednesday that the economy has seen improvements in business investment and exports despite persistent uncertainty about NAFTA and other trade policy developments.

B次元官网网址淩ecent data reinforce governing councilB次元官网网址檚 assessment that higher interest rates will be warranted to achieve the inflation target,B次元官网网址� the bank said as it explained the factors around its rate decision.

B次元官网网址淲e will continue to take a gradual approach, guided by incoming data. In particular, the bank continues to gauge the economyB次元官网网址檚 reaction to higher interest rates.B次元官网网址�

The statement also pointed to other encouraging signs in Canada, including evidence the real estate market has begun to stabilize as households adjust to higher interest rates and new housing policies. Credit growth has moderated, the household debt-to-income ratio has started to move down and improvements in the job market and wages have helped support consumption, it said.

The bank can raise its overnight rate as a way to keep inflation from running too hot. Its target range for inflation is between one and three per cent.

Heading into WednesdayB次元官网网址檚 rate decision, analysts widely expected Poloz to hold off on moving the rate B次元官网网址� at least for now.

Last month, Poloz stressed the need to take a gradual approach to rate increases in times of uncertainty. He made the remarks during a panel appearance at the annual meeting of central bankers, academics and economists in Jackson Hole, Wyo.

Andy Blatchford, The Canadian Press

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