The Bank of Canada raised its key lending rate by a quarter percentage point to 1.25 per cent Wednesday, the third time it has moved its benchmark rate from once-record lows last summer.

The bank's rate has an impact on rates that Canadians get from retail banks for things like mortgages, savings accounts and GICs. The move means borrowers can expect to pay more, but savers can expect to earn more, too.

After the central bank moved in the morning, the Royal Bank of Canada hiked its prime lending rate by the same amount, 25 points, in the afternoon. RBC's new rate of 3.45 per cent will be in effect as of Thursday, Jan. 18. Canada's other big banks are expected to follow suit.

The Bank of Canada was widely expected to raise its key rate after economic data in recent months showed gross domestic product growing, the job market healthy and the cost of living ticking higher.

The bank's benchmark rate is now at its highest level since 2009.

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In the MPR, the bank nudged up its expectations for how the economy will perform this year and next. The bank now expects Canada's economy to expand by 2.2 per cent this year and 1.6 per cent in 2019. Previously the bank was anticipating 2.1 and 1.5 per cent growth.

But while broadly positive about the economy's prospects, the bank cited "uncertainty about the future of NAFTA" as a reason for concern moving forward.

Rate hikes from the central bank can add up fast for Canadians with variable rate mortgages. (Scott Galley/CBC)

Officials from Canada, the United States and Mexico are set to meet again to discuss trade issues next week, and there are concerns that the U.S. is getting ready to unilaterally pull out of the North American Free Trade Agreement — a development that would hit Canadian exports hard.

"At this stage, it is difficult to predict the possible outcomes of trade negotiations and the timing, incidence and magnitude of their effects," the bank said in its MPR, which mentions NAFTA concerns nine times in the 21-page document.

At a press conference, Bank of Canada governor Stephen Poloz expanded on that thought, telling reporters it is hard to come up with a firm number to gauge the impact of something as dramatic as implementing tariffs into a trade relationship that had previously been open.

"I would believe it would be net negative for both Canada and for the U.S.," he said of the theoretical demise of NAFTA, "but to actually quantify that is very difficult, because every sector is affected differently."

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Reaction to the rate move was muted, as the decision was very much expected, and Canada's largest bank has already moved to match the central bank's hike.

But dark clouds on the trade horizon had many watchers downgrading their expectations.

"Today's rate hike was a rear-view mirror move," CIBC economist Avery Shenfeld said of the bank's decision to hike, but the concern over NAFTA "hints that the view out the front window isn't quite as sunny." At the very least, he said, the statement reinforces "the need to be cautious in how fast they hike ahead."

Some of the bank's worries came as a negative surprise to currency investors, who sold off the loonie after the rate decision came out. Shortly after the announcement, the loonie was changing hands at just over 80 cents US, off about a half a cent from where it was before the announcement.