Bank of Canada Hikes to 0.75% Delivers Hawkish Comments

The Bank of Canada has raised its key interest rate as expected to 0.75 per cent — the central bank’s first move upward in the cost of borrowing in seven years.

The bank’s target for the overnight rate — at which major financial institutions make one-day loans to each other — moved up by one-quarter of a percentage point from 0.50 per cent.

“As a result, a significant amount of economic slack has been absorbed,” the bank said, adding that the remaining slack is expected to be gone around the end of this year, which is earlier than the bank anticipated in its April  Monetary Policy Report.

The move means consumers will likely pay more for borrowing such as variable-rate mortgages and lines of credit.

In the wake of the rate hike, the Canadian dollar shot up. The loonie was trading up 0.64 of a cent at 78.03 cents US late Wednesday morning. 

The interest rate increase had been widely expected after senior Bank of Canada officials signalled in speeches and interviews over the past weeks that lower rates had done their job, and the Canadian economy was performing well.

via CBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza