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The Bank of Canada is raising its target for the overnight rate to 1%.
This is a quarter point jump from the previous interest rate of 0.75% and a half point increase from where the interest rate was just a few months ago.
Recent strong economic data supports the Bank’s view that growth in Canada is becoming more broadly-based and self-sustaining.
Consumer spending remains strong and there has been widespread strength in business investment and in exports.
Bank of Canada increases overnight rate target to 1 per cent https://t.co/4KuqYWfSRT
— Bank of Canada (@bankofcanada) September 6, 2017
The housing sector also appears to be cooling in some markets in response to recent changes in tax and housing finance policies.
The Bank still expects moderate economic growth in the latter half of 2017, but the level of GDP is now higher than the Bank had expected.
That is partially due to significant geopolitical risks and uncertainties around international trade and fiscal policies, leading to a weaker U.S. dollar against many major currencies.
The Canadian dollar has appreciated in this context, reflecting the relative strength of the Canadian economy.
Wednesday’s announcement has already had a positive effect on the CAD, as it’s already jumped 1.41% since the market opened, more than a cent increase on the USD.
“Given the stronger-than-expected economic performance, Governing Council judges that today’s removal of some of the considerable monetary policy stimulus in place is warranted,” said a statement from the Bank of Canada on Wednesday.
“Future monetary policy decisions are not predetermined and will be guided by incoming economic data and financial market developments as they inform the outlook for inflation.”
The Bank, however, hinted that it’s unlikely rates will go up again due to the elevated household indebtedness and the sensitivity of the economy to higher interest rates.
After not raising the interest rate for seven years, this is the second consecutive rate increase that that Bank has made.
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