OTTAWA (Reuters) – The Bank of Canada raised interest rates on Wednesday, surprising many, and left the door open to more rate hikes in 2017 even as it pledged to pay attention to how higher borrowing costs would hit Canada’s indebted households.
The 25-basis-point increase to 1 percent followed a hike in July and puts Canada ahead of the curve in returning borrowing costs to more normal levels after they were slashed due to the 2007-2009 financial crisis. While the U.S. Federal Reserve has begun tightening, its pace has been slower.
The Bank of Canada said the hike was warranted given unexpectedly strong economic growth in the second quarter, but said future moves are not predetermined and would be guided by data and market developments.
“I guess they felt the economy was too strong for their comfort and raises inflation risks,” said Sal Guatieri, senior economist at BMO Capital Markets.
While a significant minority in the market had bet on a move on Wednesday, most analysts had expected the bank would wait until its October meeting to hike, and the back-to-back increases rocked financial markets.