Bank of Canada raises rates, says future moves guided by data, markets

The Canadian got a big boost on Tuesday moving up to trade above 81 cents US ahead of a Bank of Canada decision on interest rates

GDP growth rate drastically raises odds of interest rate hike

The currency had been in the red before the central bank said its key rate will rise by one-quarter point to 1.0 per cent.

Bank of Canada snapped traders out of their slumber on Wednesday with an unexpected decision to hike interest rates.

The Bank of Canada is now expected to commit to a more hawkish tone than the U.S. Federal Reserve, which has tempered its rate hike forecasts after recently disappointing data. At its previous meeting in July, the BoC raised its key rate for the first time in seven years, also by 25 basis points.

CIBC economist Avery Shenfeld argued that the timetable for the hike is much tighter, as the BoC could be expected to increase rates this week.

Lower interest rates generally stimulate economic activity, by making it cheaper for firms and consumers to borrow. Prime rates are the basis for products like variable-rate mortgages and home equity lines of credit. Most of the big banks had been expecting Poloz to wait until October before introducing the second increase.

Trump woos Democrat with trip on Air Force One
The White House did not release details to KX about whether the speech will be open to the public, or who else will be attending. President Barack Obama traveled to the state in 2014 when he visited the Standing Rock Indian Reservation.

WATCH: How will homeowners be affected by a higher interest rate? Others predicted the bank would refrain from moving the rate out of concern such this would drive up an already strengthening Canadian dollar and pose a risk to exporters.

TD Economics senior economist Brian DePratto agreed, noting that a near-future rate hike is "almost certainly a done deal".

The bank also said that although the global economy is seeing stronger than expected growth indicators there are "significant geopolitical risks and uncertainties around worldwide trade and fiscal policies remain, leading to a weaker USA dollar against many major currencies". Particular focus will be given to the evolution of the economy's potential, and to labour market conditions. There has been a slight increase in both total CPI and the Bank's core measures of inflation, consistent with the dissipating negative impact of temporary price shocks and the absorption of economic slack.

Furthermore, the central bank said it would pay "close attention" to how the economy responds to higher borrowing costs, given households have accumulated record levels of debt.

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