Overall, the Bank still expects average growth of close to 2 per cent over 2018-2020.
The decision will likely prompt Canada's big banks to raise their prime rates, thereby passing on the rate increase along to their customers. This effect is now judged to be larger, given mounting trade tensions.
Money markets see a almost 70 per cent chance of further Bank of Canada tightening by December. Talks to renegotiate the North American Free Trade Agreement stalled earlier this year, and Canada imposed retaliatory tariffs this month.
Canada, which has its own trade dispute with the United States, exports many commodities and runs a current account deficit so its economy could also be hurt if the flow of trade or capital slows. The economy's growth projection for this year remains at 2%, the bank said.
Scott Hannah says higher interest rates have also helped to cool down the country's real estate markets, helping future homeowners.
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Economists anticipate several more hikes this year and in 2019.
The central bank says Canadian growth will continue to see bigger contributions from exports and business investment, while it expects household spending to represent a smaller share due to the dampening effects of higher interest rates and stricter mortgage rules.
"Based on our interpretation of the bank's statement, we think that policymakers envisage a somewhat faster pace of tightening, but still think that disappointing data will persuade the governor to stand pat for some time and then, eventually, to force a reversal, with rates falling next year".
Consumer price inflation is expected to edge up to 2.5 per cent before returning to around 2 per cent by the second half of 2019.
"There are worries ahead, growth hasn't been stellar, but the backdrop has been just good enough for the Bank of Canada to nudge rates a quarter point higher".