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Bank of Canada raise interest rates boosting Canadian Dollar

Bank of Canada raise interest rates boosting Canadian Dollar”

That figure could "increase to upwards of $300 million in year five as it takes a while to blend into the portfolio, as we roll off assets, and we refinance assets at the higher rate..."

The lending margins of Canada's biggest banks had been under pressure in recent years until July, when the Bank of Canada lifted its key interest rate from 0.5 to 0.75.

The Bank of Canada also cited recent better-than-expected data supports its view that growth is more "broadly-based and self-sustaining".

All major global central banks slashed interest rates and several turned to alternative methods to stimulate their economies in the wake of the global financial crisis in 2007-2009. Consumer spending remains robust, underpinned by continued solid employment and income growth.

The rate, which aims to keep inflation around 2% and to avoid overheating economic, is the one to which the Bank of Canada is that the banks lend money on a daily basis. The pace has dramatically raised the odds of a hike in September up to 50 per cent, according to September 1 overnight index swaps market data. The Bank of Canada has distinguished itself as the only central bank willing to raise borrowing costs before inflation has even reared its head, said Shaun Osborne, chief FX strategist at Scotiabank.

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This marks the second straight meeting at which Canada's central bank increased its main interest rate, which has been on hold for seven years, and unwinds the two rate cuts it delivered in 2015 to deal with negative fallout from the commodity-price swoon. "That was possible when housing prices were rising rapidly and interest rates were at record lows".

At this meeting, there was no new Monetary Policy Report (MPR) and Governor Poloz will not be holding a press conference.

"Given the stronger-than-expected economic performance, [the bank] judges that the removal of some of the considerable monetary policy stimulus is warranted". The suggestion is the Canadian dollar gains aren't totally reflective of growth.

"The Bank has said that future increases will not be "predetermined", which aims perhaps to indicate to the markets that they will not increase the rate a quarter point at each meeting, " wrote CIBC in a note to its clients.

Even with the recent economic improvements, the bank still underlined concerns around geopolitical risks and uncertainties related to worldwide trade and fiscal policies. The bank ended with, "given elevated household indebtedness, close attention will be paid to the sensitivity of the economy to higher interest rates".

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