The Bank of Canada's increase in its key interest rate again

The Bank of Canada's increase in its key interest rate again

The Bank of Canada's increase in its key interest rate again

"The Bank of Canada took the fast lane in returning rates to 1.0%, hiking 25bp when most were expecting a hold until October".

The Canadian dollar, meanwhile, climbed more than 10 percent since May to about 81 cents US.

Yet, there was an introduction of cautionary language in the statement, and new worries about financial market developments, that weren't in the last rate decision and suggests the central bank isn't quite ready to declare victory on whether the economy has totally eliminated its slack.

"We can't rule out anything in coming meetings", said Doug Porter, chief economist at BMO Capital Markets.

"It didn't say that the current level of stimulus is now 'appropriate, ' which has been a phrase used in the past and would have been a way of signaling a pause in hikes from here", Andrew Grantham, an economist with Canadian Imperial Bank of Commerce, said in a note to investors.

The country recorded a 4.5-per-cent annualized pace of economic growth in the second quarter, Statistics Canada said last week, making for the best first half of a year since 2002.

Meanwhile, signals from senior Federal Reserve officials have clouded the outlook for rates in the US with concerns inflation hasn't picked up steam as previously expected.

It pledged to pay particular attention paid to the economy's potential, job-market conditions and any potential risks for Canadians from the higher costs of borrowing.

The high level of household debt and its impact on real estate prices was one of the motivating factors behind the decision and given that the economy is on more solid footing the Governing Council of the Boc made the decision to remove the stimulus it had placed in 2015 with its two rate cuts.

In its statement, the bank also said headline and core inflation have seen slight increases since July, largely as expected.

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".

An unexpectedly strong Canadian economy was behind the bank's decision.

Business investment and exports have also broadly strengthened, it said. Yet, Canada's merchandise trade deficit with the rest of the world narrowed in July from the previous month because imports also declined deeply.

Even with the recent economic improvements, the bank still underlined concerns around geopolitical risks and uncertainties related to global trade and fiscal policies.

Investors anxious that the sharp appreciation of the Canadian dollar would hurt prospects for producers of commodities priced in USA dollars.

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