Canada: Bank of Canada raises interest rates for first time in 7 years

The Bank of Canada raised interest rates this July, the first hike in rates since September 2010. The rate was increased 25 basis points to 0.75%, with the increase driven by an uptick in household spending that has helped strengthen the Canadian economy.

The hike was widely anticipated due to senior Bank of Canada officials commenting in the run up to the increase that the low rates had helped the Canadian economy to recover. This is the first time that interest rates have been raised during Stephen Poloz’s tenure as Bank of Canada Governor.

It is important to note that interest rates have been raised despite inflation being below the central bank’s inflation target of 2%. This is due to the central bank believing that the low inflation rates are temporary, with Poloz stating: “It is worth remembering that it can take 18 to 24 months for a monetary policy action to have its full effect on inflation. This means that central banks must target future inflation by anticipating future deviations from target”.

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