Bank of Canada raises interest rate for 1st time in 7 years to 0.75%

July 13, 2017

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.

In a statement accompanying the rate decision, the central bank said the Canadian economy has been robust, fuelled by household spending...

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 up 1.05 cents at 78.48 cents US as of 4:33 p.m. ET on Wednesday. The daily average exchange rate for the Canadian dollar on Wednesday was 78.16 cents US, up 0.76 cents from Tuesday's average.

...Bank of Canada governor Stephen Poloz acknowledged that the bank raised its key rate despite inflation currently lagging below its stated target of two per cent. Poloz said the bank considers that weakness in inflation to be temporary...

The bank is currently expecting a "modest overshoot" of the two per cent inflation target in 2019...

With the economy performing well, the bank has also nudged up its forecast for growth this year. The bank said real gross domestic product (GDP) is now expected to grow by 2.8 per cent in 2017, up from the April outlook of 2.6 per cent.

The central bank said growth is expected to moderate over the next two years, coming in at two per cent in 2018 and 1.6 per cent in 2019.

This is excerpted from 12 July 2017 edition of CBC News.


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