US & Canada

Bank of Canada in first rate rise since 2010

Stephen Poloz Image copyright Getty Images
Image caption The economy can handle very well this kind of move today," said Bank of Canada Governor Stephen Poloz

The Bank of Canada has raised interest rates by one quarter of a per cent for the first time in about seven years.

The central bank raised its key interest rate Wednesday morning to .75 from .5, citing strong economic growth despite low inflation.

The news was expected, but the hikes will have wide-ranging effects, especially on variable-rate mortgages.

The Canadian dollar reached an 11-month high in anticipation of the announcement.

Economic growth has been stop-and-go since the recession, with more serious setbacks in 2015 when oil prices tanked.

But it has picked up since then, with GDP growing by 3.7% in the first quarter of 2017.

Strong consumer spending, exports and investments are expected to keep the economy growing, the central bank predicts.

"The economy can handle very well this kind of move today," said Bank of Canada Governor Stephen Poloz.

"Of course we'd preface that with the acknowledgement that of course interest rates are still very low."

While the US Federal Reserve has been raising interest rates slowly since 2015, this is essentially the Bank of Canada's first toe in the water.

"It reads hawkish," Andrew Kelvin, senior rates strategist at TD Securities, told Reuters. "We are probably going to see them reduce more stimulus later this year provided that the outlook holds up."

After slashing rates following the recession, the bank slowly raised them from .25% to 1% in the course of 2010, as the country showed strong signs of recovery.

But a mini-recession caused by a downturn in oil prices led to the bank lowering them back down to .5%, where they remained until Wednesday.

Some economists expect interest rates to rise again in October, but Mr Poloz was coy on those prospects.

"In the full course of time, I don't doubt that interest rates will move higher, but there's no predetermined path," he said.

Canada has one of the highest rates of consumer debt in the world, thanks in part to historically low interest rates over the past several years.

With rates on the rise, this consumer debt could could put some households in peril, and a hike in mortgage rates could trigger some housing markets to cool, say financial analysts.

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