With the Canadian economy performing better than expected in the first quarter, the Bank of Canada dropped its “cautious” language from its decision Wednesday to hold interest rates steady – a decision that now has markets pricing in rate hikes later this year.
The central bank held its target for the overnight rate at 1.25%. However, economists noted that the Bank of Canada dropped an oft repeated reference to remaining “cautious” about Canada’s economic prospects, which has tended to signal a more hawkish tone. The removal of the word “cautious” from the Bank of Canada’s rhetoric has economists speculating that another interest rate increase will be coming soon – certainly by year’s end.
“All told, the positives seem to outweigh the negatives,” TD Bank Senior Economist Brian DePratto wrote in a note to clients. “Gone was the reference to ‘caution’ that typified the last few statements.”
The Canadian dollar shot up Wednesday after the Bank of Canada’s interest rate decision. In foreign exchange trading, the loonie was ahead by 0.82 of a cent at 77.64 cents U.S. when stock markets closed.
The Bank of Canada’s next scheduled interest rate decision is set for July 11. The central bank has raised its key rate three times since last summer, increases that have prompted the big Canadian banks to raise their prime interest rates which are used to set the rates charged for mortgages and other loans.
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