Bank of Canada raises interest rate to one percent

Bank of Canada raises interest rate to one percent”

Policy makers raised their benchmark rate for a second time in since July, by 25 basis points to 1 per cent.

The loonie soared this morning after the Bank of Canada announced an increase in its key lending rate, a move that caught some market watchers by surprise. As previously mentioned, this is dependent on how the Canadian economy reacts to the interest rate hike, with particular attention being paid to household debt moving forward.

Canada's annualized growth rate of 4.5 per cent in the second quarter led all G7 countries.

In its accompanying statement, the central bank stated its decision was supported by the bank's view that Canada is "becoming more broadly-based and self-sustaining".

There appears to be a good deal of investors who are hopeful that this upcoming meeting will provide some further confirmation that the hawkish bias is real and the central bank is intending to tighten policy beyond more than just removing the insurance cuts put in place at the height of the oil crash.

"Consumer spending remains robust, underpinned by solid employment and income growth".

Governor Stephen Poloz is trying to strike a balance between bringing interest rates back to more normal levels amid the strongest growth spurt in more than a decade, without harming an economy that is only now beginning to fully recover from an nearly decade-long downturn.

Bank of Nova Scotia CEO Brian Porter said that the latest hike and a previous increase of 25 basis points in July would add 2 to 3 basis points in 2018 to the net interest margin achieved by the bank's Canadian business.

Canada's currency climbed as much as 1.8 per cent after the decision, reaching $C1.2146 against its U.S. counterpart, the highest intraday level since June 2015, and extending the gain this year to 10 per cent. There was no Monetary Policy Report or news conference to explain a move higher.

The Canadian dollar, meanwhile, climbed more than 10 percent since May to about 81 cents US. In this context, the Canadian dollar has appreciated, also reflecting the relative strength of Canada's economy. It said the Canadian dollar has appreciated - roughly 10% in past three months - and that reflected both domestic strength and weakness in the US currency amid "significant geopolitical risks and uncertainties around" the renegotiation of the North American Free-Trade Agreement, and USA fiscal policy.

Future rate decisions, the bank said, would continue to be guided by economic data and financial market developments. Nevertheless, there is still some slack in the labour market while wage and price pressures are still more subdued tan historical relationships would suggest.

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