Photo: James Bombales
The Bank of Canada has done it again.
Canada’s central bank has hiked the target for the overnight rate, which influences the mortgage market, by 25 basis points to 1 per cent.
In July, the Bank of Canada also increased the overnight rate by 25 basis points, its first hike in seven years.
“Recent economic data have been stronger than expected, supporting the Bank’s view that growth in Canada is becoming more broadly-based and self sustaining,” reads a statement from the central bank.
“Consumer spending remains robust, underpinned by solid employment and income growth. There has also been more widespread strength in business investment and in exports,” the bank continues.
In 2015, the Bank of Canada cut the key interest rate by 25 basis points to counter the effects of lower oil prices on the national economy.
Speculation that the central bank was going to begin moving the key interest rate up intensified earlier this summer, when Bank of Canada Governor Stephen Poloz said these cuts had “done their job.”
After the Bank of Canada’s July hike, observers widely expected a repeat performance from the central bank before the year’s end.
In response to the rate hike, one economist suggests another rate hike this year is possible but unlikely.
“While we can’t rule out another rate hike before the end of this year, we should note that the economy is still overly dependent on the heavily indebted household sector to support economic growth,” writes David Madani, senior Canada economist at Capital Economics, in a note.
“That was possible when housing prices were rising rapidly and interest rates were at record lows. But both of those supports are clearly fading. With the housing market teetering even before rates began to rise, we expect the economy to lose momentum before the year is over, prompting the Bank to abort its rate hike cycle,” Madani continues.
The Bank of Canada has two more interest-rate announcements scheduled before the year’s end. The next announcement is slated for October 25th, when the bank will also release its latest Monetary Policy Report.