"Recent economic data have been more vigorous than expected, which supports the point of view of the Bank, according to which the growth in Canada is becoming more widespread, and more autonomous", stresses the central bank in a press release published Wednesday morning.
The Canadian dollar continued its upward climb on the news, trading up around 81.8 USA cents to gain about 1.2% on the day and 1.6% already this week. Since slashing rates because of the global financial crisis dubbed the Great Recession that ended in 2009, central banks have been closely watched for interest rate hikes as a signal that nations are healing from the financial collapse almost a decade ago.
Going forward, the Bank said it is going to look at how the labour market is evolving before making future rate changes.
Rob McLister, founder of RateSpy.com, gives his instant analysis of what the Bank of Canada's rate hike to one per cent means for Canadian housing and mortgages. Traders had assigned about a 40 percent chance of an increase.
The explanation regarding the Canadian dollar's rise suggests the central bank "isn't quite as obsessed" with the currency's value versus the US dollar as traders had long believed, according to Bipan Rai, currency strategist with Canadian Imperial Bank of Commerce.
As Canada celebrates its 150th birthday, the economy is strengthening.
TD CEO Bharat Masrani told the conference that rising interest rates are a "positive phenomenon" for the financial institution.
The Bank said that given the stronger-than-expected economic performance, their increase today is "warranted".
After July's rate hike, Canada's biggest banks quickly followed suit by increasing their prime lending rates by 25 basis points.
Yet, there was an introduction of cautionary language in the statement, and new worries about financial market developments, that weren't in the last rate decision and suggests the central bank isn't quite ready to declare victory on whether the economy has totally eliminated its slack. He may also be attempting to restrain market expectations it will get too far ahead of the Federal Reserve.
Canada, Mexico and the United States made progress in talks to update the NAFTA trade pact, top officials said, a relief after repeated criticism by U.S. President Donald Trump. The suggestion is the Canadian dollar gains aren't totally reflective of Canadian growth and it was the first reference to the Canadian dollar in a rate statement since March.
Bank of Nova Scotia CEO Brian Porter said that the latest hike and a previous increase of 25 basis points in July would add 2 to 3 basis points in 2018 to the net interest margin achieved by the bank's Canadian business.