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

THE CANADIAN P
Canadian dollar traded in a range of $1.2368 to $1.2416 Jeff McIn THE CANADIAN P
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07 September, 2017

Policymakers raised their benchmark rate 25 basis points to 1 percent, the second increase since July.

"If you believe that we are in a rising rate environment then I think generally speaking it's a positive event for TD as long as the rate hikes are in an orderly fashion and do not tip the economy into a major slowdown", Masrani said.

"The Bank of Canada feels it is behind", Frances Donald, senior economist at Manulife Asset Management, wrote in a tweet.

Royal Bank of Canada's Chief Executive Dave McKay said he expected the decision to raise interest rates to add more than C$300 million ($245 million) to revenues at the country's biggest bank over 5 years.

Even if it doesn't, there's no question a stronger-than-expected economy will hasten the Bank of Canada's hand when it comes to raising rates.

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. "There has also been more widespread strength in business investment and in exports", the bank continues. On July 12, the bank raised rates for the first time in nearly seven years.

That followed unexpectedly healthy growth in the first three months of 2017 and easily exceeded the Bank of Canada's projections.

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The bank cited Canada's stronger-than-expected economic performance for the hike, warranting a removal of some of the "considerable" stimulus in place.

The Canadian dollar gained more than a penny in reaction to the news on Wednesday, and was changing hands at 82 USA cents, the highest level since June 2015.

At this meeting, there was no new Monetary Policy Report (MPR) and Governor Poloz will not be holding a press conference.

The bank, for its part, did make mention of the soaring loonie - pointing to the weaker US dollar and the strengthening Canadian economy.

The Canadian dollar shot up after the announcement.

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

As is often the verbiage of central banks, no future moves are set in stone, as they will be determined by analysis of economic data and other developments. It noted, however, that upward pressure on wages and prices remain more subdued than historical trends would suggest, which has also been seen in other advanced economies. Furthermore, given elevated household indebtedness, close attention will be paid to the sensitivity of the economy to higher interest rates.


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