Bank of Canada increases overnight rate target to 1 per cent

The Canadian got a big boost on Tuesday moving up to trade above 81 cents US ahead of a Bank of Canada decision on interest rates

Only six of 26 economists surveyed by Bloomberg News expected the central bank to hike its benchmark rate.

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

The Bank said the housing market is cooling in some markets as a result of changes to mortgage policies, and this is one reason a moderation in the rate of growth is expected in the second half of 2017.

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. Futures trading was assigning about a 40 per cent chance of an increase.

That figure could "increase to upwards of $300 million in year five as it takes a while to blend into the portfolio, as we roll off assets, and we refinance assets at the higher rate..."

The Canadian dollar gained more than a penny in reaction to the news on Wednesday, and was changing hands at 82 USA cents, the highest level since June 2015.

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.

Looking forward, the BoC suggested that there could be more rate hikes in the future. "Given the stronger-than-expected economic performance, [the bank] judges that the removal of some of the considerable monetary policy stimulus is warranted".

Read in whatever light, it looks like the Bank of Canada is sending a message that the days of completely easy money are coming to an end.

The Bank of Canada also cited recent better-than-expected data supports its view that growth is more "broadly-based and self-sustaining". As well, consumer spending - boosted by strong employment and income growth - has been "robust", and business investment and exports have been increasing, the Bank said, which has all contributed to economic growth that exceeded analysts' expectations.

SEB Research comments on today's BoC policy decision in which central bank raised rates by 25bp to 1.0%. It said the Canadian dollar has appreciated - roughly 10% in past three months - and that reflected both domestic strength and weakness in the US currency amid "significant geopolitical risks and uncertainties around" the renegotiation of the North American Free-Trade Agreement, and USA fiscal policy. They added the central bank might also want to gauge market reaction to Federal Reserve plans to shrink its balance sheet, and contain any further upward move in the value of the Canadian dollar, which threatened to weigh on export growth. 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.

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