Here comes the Bank of Canada

Stephen Poloz Bank of Canada

Bank of Canada Governor Stephen Poloz Reuters Chris Wattie

The bank's rate has returned to where it was at the start of 2015, when the central bank started slashing rates to stimulate a Canadian economy that had been waylaid by the oil price crash.

The Bank of Canada raised its key interest rate for the second time this year on Wednesday after what many analysts saw as a coin-flip decision.

"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.

The Canadian dollar briefly broke through the 82-cent mark relative to the USA dollar after the Bank of Canada's announcement. "While an argument could be made that holding off a few weeks for the opportunity to more fulsomely explain how the outlook for the economy has evolved, this clearly did not hold sway in Ottawa today".

"Indeed, Canada's economy has been coming in hot of late, with emergency level interest rates no longer warranted".

This was only the second time in seven years the Bank raised the rate; the first time was July 12 when it boosted the rate to 0.75% from 0.5%, where it had sat since July 2015. He changed his forecast last week to correctly predict therate increase. Futures trading was assigning about a 40 per cent chance of an increase.

However, the statement didn't go so far as to say the current level of stimulus is now appropriate, which has been a phrase used in the past.

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Wednesday marks the bank's second consecutive rate hike.

That followed unexpectedly healthy growth in the first three months of 2017 and exceeded the Bank of Canada's projections.

TD CEO Bharat Masrani told the conference that rising interest rates are a "positive phenomenon" for the financial institution.

The bank also said that although the global economy is seeing stronger than expected growth indicators there are "significant geopolitical risks and uncertainties around worldwide trade and fiscal policies remain, leading to a weaker U.S. dollar against many major currencies".

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.

It noted that inflation remained below its 2.0 percent target, but said there is still some excess capacity in the labor market, and wage and price pressures "are still more subdued than historical relationships would suggest".

Poloz may also be attempting to restrain market expectations it will get too far ahead of the Federal Reserve, citing worries about recent "financial market developments". The Canadian dollar initially surged on the news to a fresh two-year high, although it pared back some of the early gains.

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