Canada: Bank of Canada hikes interest rate to 1%

The Bank of Canada has increased its key interest rate for the second time in two months, in an effort to regulate economic growth. GDP showed a striking expansion of 4.5 percent in the second quarter. According to the Bank, Canada’s growth is becoming more self-sustaining as employment and wage growth have allowed consumers to spend more, whilst major areas of business investment and exports have also grown.

Looking to the future, the bank asserted that future rate decisions would not be predetermined and will be directed by economic data and market developments such as job market conditions, the potential of the economy and the level of financial risks for Canadians from the higher charges of borrowing. However, the rate increase will also help the economy deal with the drop in oil prices. As the Canadian Dollar gets stronger it poses a risk to exporters and with the interest rate changing it could drive up an already strong Canadian Dollar, but for the moment there has been widespread strength in exports.

Uncertainty around international trade and fiscal policies have led to a weaker US Dollar whereas the Canadian dollar has appreciated, reflecting the strength of Canada’s economy. According to RFi Group data, 32% of Canadians are very concerned with the changes in interest rates within the next 12 months. Due to the elevated level of household indebtedness, thoughtful consideration needs to be paid to the sensitivity of the economy, regarding higher interest rates.

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