The Bank of Canada surprises with a rate hike

Reuters/Chris Wattie

The Bank of Canada unexpectedly hiked its key interest rate by 25 basis points to 1.00% on Wednesday, citing stronger than expected economic data.

The majority of economists surveyed by Bloomberg forecast that the central bank would hold at this meeting.

"Recent economic data have been stronger than expected, supporting the Bank's view that growth in Canada is becoming more broad-based and self-sustaining," the bank said in the accompanying statement.

The BoC also said that although the global economy is seeing stronger than expected growth indicators there are "significant geopolitical risks and uncertainties around international trade and fiscal policies remain, leading to a weaker US dollar against many major currencies."

Wednesday marks the bank's second consecutive rate hike. At its previous meeting in July, the BoC raised its key rate for the first time in seven years, also by 25 basis points.

Investors had been expecting the bank to hike one more time this year, said Craig Erlam, senior market analyst at OANDA, in emailed comments ahead of Wednesday's rate decision. However, most thought the rate hike would come later in the year, not at the September meeting.

The Canadian dollar shot up after the announcement. It was stronger by 1.1% at 1.2238 at 10:05 a.m. ET after holding little changed ahead of the decision.

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