Bank of Canada increases overnight rate target to 1 per cent

On July 12, the bank raised rates for the first time in nearly seven years. The suggestion is the Canadian dollar gains aren't totally reflective of Canadian growth and it was the first reference to the Canadian dollar in a rate statement since March.

"The Bank has said that future increases will not be "predetermined", which aims perhaps to indicate to the markets that they will not increase the rate a quarter point at each meeting, " wrote CIBC in a note to its clients.

"We can't rule out anything in coming meetings", said Doug Porter, chief economist at BMO Capital Markets.

Rob McLister, founder of, gives his instant analysis of what the Bank of Canada's rate hike to one per cent means for Canadian housing and mortgages.

Meanwhile, signals from senior Federal Reserve officials have clouded the outlook for rates in the USA with concerns inflation hasn't picked up steam as previously expected.

Since slashing rates because of the global financial crisis dubbed the Great Recession that ended in 2009, central banks have been closely watched for interest rate hikes as a signal that nations are healing from the financial collapse almost a decade ago.

"The global economic expansion is becoming more synchronous, as anticipated in July, with stronger-than-expected indicators of growth, including higher industrial commodity prices", said the Bank, but it noted that "significant geopolitical risks and uncertainties around worldwide trade and fiscal policies remain, leading to a weaker USA dollar against many major currencies". There has been a slight increase in both total CPI and the Bank's core measures of inflation, consistent with the dissipating negative impact of temporary price shocks and the absorption of economic slack. It pledged to pay particular attention to the economy's potential, job-market conditions and any potential risks for Canadians from the higher costs of borrowing. The Bank of Canada have made it clear that any future interest rate decision will be made exclusively on economic data releases, and as such have not given any further signals to monetary policy decisions.

As it happens, Statistics Canada reported weak trade results just before the release of the Bank of Canada's decision.

In a statement, the bank said solid employment and wage growth led to strong consumer spending, while the key areas of business investment and exports also improved.

Canada's trade deficit shrank to $3 billion in the month, from $3.8 billion in the month before, because imports fell even faster than exports, shrinking six per cent. However, significant geopolitical risks and uncertainties around worldwide trade and fiscal policies remain, leading to a weaker USA dollar against many major currencies. He says there's been a big swing in sentiment on the loonie, and that the rapid appreciation in the Canadian dollar suggests the prospect of the currency to appreciate further is quite limited at this stage.

  • Rogelio Becker