The Bank of Canada increased interest rates by 0.25% to 1.00% following the latest policy meeting, the second successive rate hike.
Consensus forecasts were for the rates to be left on hold at 0.75%, although some investment banks had called for a further rate increase.
At this meeting, there was no new Monetary Policy Report (MPR) and Governor Poloz will not be holding a press conference.
According to the statement, recent data has been stronger than expected, supporting the bank’s view that growth is becoming more broadly based and self-sustaining. The bank still expects growth to slow over, but the level of GDP is higher than expected.
There had been a slight increase in total CPI and the bank’s core inflation readings, consistent with the absorption of economic slack. Nevertheless, there is still some slack in the labour market while wage and price pressures are still more subdued tan historical relationships would suggest.
Overall, the council judged that some further removal of considerable monetary policy stimulus is warranted.
Future policy will be determined by evolution of the economy with close attention paid to the sensitivity of the economy to higher interest rates given elevated household indebtedness.
There will be expectations that the bank thinks it is behind the yield curve, although evidence of sustained housing-sector weakness could trigger a sharp reassessment.
The Canadian dollar strengthened sharply after the decision with USD/CAD dipping to fresh 2-year lows near 1.2150 before edging back to the 1.2200 area.