The Bank of Canada has raised again its benchmark interest rate by 0.25% to 0.75% on Tuesday, the second consecutive hike after more than a year of record low rates.

The bank had previously raised its benchmark rate to 0.5 per cent in June after having kept rates at emergency lows since April 2009.

In the accompanying  statement, Mark Carney and his team said:

The Bank expects the economic recovery in Canada to be more gradual than it had projected in its April MPR, with growth of 3.5 per cent in 2010, 2.9 per cent in 2011, and 2.2 per cent in 2012. This revision reflects a slightly weaker profile for global economic growth and more modest consumption growth in Canada. The Bank anticipates that business investment and net exports will make a relatively larger contribution to growth.

The bank also made it clear that future rate hikes are not guaranteed.

“Any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments,” the bank added in its statement.

In raising the rate, the bank is effectively slowing down Canada’s economy, which had shown signs of significant strength in recent months, by boosting the country’s dollar and curbing exports. In terms of borrowing costs, strong demand for Canadian debt from foreigners should work to keep longer term yields down, so the effect of the bank’s hikes will be felt more on the short term end of the yield curve.

Economists predict Carney will raise rates again in September before pausing at one of two meetings in the fourth quarter, when economic growth may slow to a 3.1 percent pace instead of the 3.5 percent the bank predicted in April.

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Tags: Bank of Canada, benchmark interest rate, Economy