Bank of Canada announces earlier-than-expected interest rate hike

The Bank of Canada announced its second interest rate hike in two months, surprising analysts, and raising the target interest rate by one-quarter point to 1 percent. The last interest rate hike was announced in mid-July, and was the first increase the country had seen in over seven years.

Many analysts had expected Bank of Canada Governor Stephen Poloz would wait until October before announcing a second hike.

The decision acknowledges “the economy right now is robust,” notes Matthew Pot, of Grain Perspectives, suggesting Poloz may also be playing a “get-out-of-jail-free card,” taking the opportunity to create room to cut rates if needed.

Pot says there is a risk in overshooting interest rates, and that reining in a robust economy is “definitely a concern.”

Matthew Pot

“I think a lot of Canadians agree that we might be going a little too aggressive on these two rate hikes right now,” says Pot. “I would have liked to see them do one, and then test the water.”

While it may be hard to see the impact a change like this has in the long-term, Wednesday morning’s announcement definitely impacted the market short-term, with an almost immediate increase in the Canadian dollar, briefly exceeding 82 cents U.S., it’s highest point in two years.

Analysts will now be keeping an eye on the markets, as well as Poloz, who is set to deliver a speech in St. John’s, NL on September 27.

Related: Interest rate increases coming to Canada and the impact of trade talks on the Canadian economy

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