The bank raised its target for the benchmark overnight rate to 0.75 per cent from 0.50 per cent. "BTMU still sees scope for the loonie to strengthen further in the near-term lowering USD/CAD towards the 1.2500-level if the BoC signals that it plans to follow up with a second rate hike relatively quickly before the end of this year". The bank rate and the deposit rate also move up by 0.25 per cent, to 1.0 per cent and 0.5 per cent respectively.
The Canadian dollar notched it biggest percentage gain since March 2016 and was last trading at C$1.2737 to the greenback, or 78.51 USA cents, up 1.4 percent.
But that was not the message from Poloz and his deputy Carolyn Wilkins at yesterday's policy-focused news conference. "We will need to gauge carefully the effects of higher interest rates on the economy". Although, the intentions of the low-rates go back to basic economic theory and when a country decreases interest rates, the value of the home currency decreases relative to other countries making Canadian goods and "equities" cheaper for foreigners. Since the BoC's last interest rate announcement on May 24-when markets anticipated virtually no chance of a July hike-the Canadian dollar is up almost 4 percent and government bond yields are up roughly 0.40 percent.
Analysts also suggest that the squeeze in real pay will also make it more hard for the Bank of England (BoE) to raise interest rates as it will likely lead to a corresponding fall in consumer spending as it forces households to become more frugal. And while Wednesday's hike was widely expected, many Canadians may find themselves having to quickly adjust to a more expensive borrowing environment.
Both Shenfeld and BMO chief economist Douglas Porter say it is possible there will be another rate hike as early as September 6, at the next scheduled Bank of Canada rate announcement, but they say it might wait until the Bank's next Monetary Policy Report, which is scheduled for October 25.
Credit Agricole Research: In line with market expectations, our economists expect the central bank to tighten monetary policy by 25bp. As a result, a significant amount of economic slack has been absorbed.
Five-year variable-rate mortgages are largely unchanged so far and are still available at rates as low as prime minus 0.80% (1.90% today) for high-ratio buyers, and at rates as low as prime minus 0.70% (2.00% today) for low-ratio buyers, again depending on the size of their down payment and the purchase price of the property. The BoC upgraded its forecast for global growth to 3.4 percent in 2017, up slightly from 3.3 in April's MPR. Business investment should also add to growth, a view supported by the most recent Business Outlook Survey.
Business investment, imports of machinery and equipment, and exports are all showing signs of life. Statistics Canada's estimate of average hourly compensation was up 2.5 per cent from a year ago in Q1. The American jobs report published at the same time usually takes the spotlight at it also showed a 223,000 job gain south of the border but the rising expectations of the BoC hike rates on its July 12 monetary policy meeting pushed the CAD over the Dollars.