University of Winnipeg economics professor Phil Cyrenne said the trade dispute between Canada and the U.S.is something the bank will be watching closely moving forward.
The Bank of Canada expectedly increased their key interest rate by 25bps to 1.50%, marking the fourth rate hike in the last 12-months, which resulted in the Canadian dollar climbing on the news.
The decision, a move that prompted some of the big banks to start raising their prime rates later in the day, arrived in the middle of a trade dispute between Canada and the United States that's expected to hurt both economies.
The rate is what banks pay for short-term loans, which affects what consumers pay for things like mortgages, lines of credit and savings accounts.
The tariff fight is expected to shave two-thirds of a percentage from Canada's economic growth by the end of 2020, the bank estimated.
USA tariffs on the auto sector's integrated cross-border supply chains would have "large impacts on investment and employment", the Bank of Canada warned Wednesday in its accompanying monetary policy report.
CPI and the Bank's core measures of inflation remain near 2 per cent, consistent with an economy operating close to capacity.
Governing Council expects that higher interest rates will be warranted to keep inflation near target and will continue to take a gradual approach, guided by incoming data.
Another hike this week would come with Canada facing a number of trade-related uncertainties, including NAFTA talks, USA steel and aluminum tariffs and the threat of more duties on the economically critical automotive sector.
It was reasonable to think at the beginning of the year that the unknowns surrounding NAFTA talks could pause business investment and lead to a decline in activity, he said.
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.
"The Bank maintained a cautious tone while highlighting its data dependency, that said, this was not the "dovish" hike many, including ourselves, expected".