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Interest Rates Rise Second Time In Less Than Two Months

OTTAWA — One way to cool the still hot Canadian real estate market is to begin raising interest rates and that is exactly what the Bank of Canada has done, raising its interest rate for the second time in less than two months in an effort to adjust to the unexpected force of the country’s economic momentum.

Wednesday’s hike of its overnight lending rate to 1.0 per cent marks its second quarter-point increase since July, and comes less than a week after the latest data for economic growth showed an impressive expansion of 4.5 per cent for Canada in the second quarter, reported Canadian Press.

That April-to-June performance followed surprisingly healthy growth in the first three months of 2017 and easily exceeded the Bank of Canada’s projections.

“Recent economic data have been stronger than expected, supporting the bank’s view that growth in Canada is becoming more broadly-based and self-sustaining,” the bank said in a statement that accompanied the announcement.

The bank said solid employment and wage growth have led to strong consumer spending, while the key areas of business investment and exports have also showed improvements.

The loonie soared on the news, jumping more than a cent to over 82 cents US, up from Tuesday’s average price of 80.83 cents US. The dollar is now up about 3 per cent over the past month and up 14 per cent from its low of roughly 73 cents in April.

In making what many described as a “hawkish” move, the bank made a point of also highlighting potential negatives in the brief, 400-word statement.

The bank underlined concerns around geopolitical risks and uncertainties related to international trade and fiscal policies. It also predicted the rapid pace of economic growth to moderate in the second half of the year

Looking ahead, the bank insisted future rate decisions would not be “predetermined” and will be guided by upcoming economic data releases and financial market developments.

 

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