The Bank of Canada flatfooted the market and hiked +25 bps to +1% on stronger growth data.
Canadian Q2 data warranted the removal of “considerable” stimulus from the economy.
This marked the second consecutive meeting that the BoC has increased its main interest rate, after being on hold for seven years.
The market had expected Governor Stephen Poloz to leave its policy rate unchanged, while signalling gradual rises over the coming quarters. Recent indicators, such as Q2 GDP rose by a whopping +4.5% annualized rate in the April-to-June period, support “the bank’s view that growth in Canada is becoming more broadly-based and self-sustaining.”
The loonie quickly printed a new two-year high (C$1,2140) outright following the surprise rate hike.
The chance of a rate hike today was viewed as a coin toss. The BoC noted that geopolitical risks and uncertainties around international trade have led to a weaker U.S. dollar, while helping to appreciate the Canadian dollar.
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