The Bank of Canada has shocked markets by raising its trendsetting overnight interest rate by 25-basis points to 4.75%, the highest level in 22 years.
The decision by central bank officials to further hike interest rates was expected by only about 20% of economists, according to polls by the Reuters News Agency and Bloomberg Markets.
The Bank of Canada’s key lending rate is now at its highest level since 2001.
The interest rate increase is the first since the Bank of Canada announced that it was pausing its monetary tightening regime in January and comes as data points to a resilient economy.
The central bank cited recent data that showed stronger-than-expected first quarter gross domestic product (GDP), a rise in inflation, and a strengthening housing market as evidence that the Canadian economy is still running too hot.
The Bank of Canada was the only Group of Seven (G7) central bank to pause its interest rate increases this year.
The central bank said it will continue to scrutinize economic data to determine if further interest rate hikes are needed in the months ahead.
The Bank of Canada’s next interest rate decision is scheduled to take place on July 12.
Canada’s bonds fell sharply on news of the interest rate increase, while the Canadian dollar rose to $1.3347 per U.S. dollar.
