OTTAWA -- The Bank of Canada raised its benchmark interest rate Wednesday by 25 basis points to 1%, arguing financial conditions remain “exceptionally stimulative” even in the face of a slowing -- but still growing -- economy.

Following the announcement, market watchers said traders increased the odds of another rate hike in 2010. However, others suggested a long pause could be in store as they focused on the final line in the statement that said any further reduction in monetary policy stimulus would need to be “carefully considered in light of the unusual uncertainty” over the economic outlook.

“This is key … as it appears to indicate the Bank of Canada’s intention to pause the [rate-hiking] process,” said Michael Woolfolk, senior currency strategist at BNY Mellon in New York, adding the pause could extend beyond the “next meeting or two.”

Not all analysts shared that view, with some saying the central bank could hike its benchmark rate yet again this year.

In the statement, the central bank acknowledged the economic recovery in Canada would be “slightly more gradual” than envisaged it its most-recent economic outlook, due to sluggish private-sector demand in the United States. However, it said domestic demand was expected to be “solid” and business investment to advance “strongly” -- powered by “accommodative” credit conditions that have eased further in recent weeks due to sharp declines in bond yields.

Banks price loans, such as mortgages, based on yields for relatively safe government-issued debt.

“As a result of monetary policy measures taken since April, financial conditions in Canada have tightened modestly but remain exceptionally stimulative,” the central bank said.

Consumers continue to take out loans at a steady pace, with central bank data suggesting household credit expanded at an annualized 7.1% pace for the three-month period ended July 31.

Yet, the Bank of Canada said future hikes in its key lending rate, up 75 basis points in the past three months, “would need to be carefully considered in light of the unusual uncertainty surrounding the outlook.”

Jonathan Basile, economist at Credit Suisse, said reference to “unusual uncertainty” -- which roughly mimics wording from U.S. Federal Reserve chairman Ben Bernanke -- could be interpreted as a sign that conditions have deteriorated. As a result, Mr. Basile said he expects the central bank would refrain from further rate hikes until the second half of next year.

Conversely, Douglas Porter, deputy chief economist at BMO Capital Markets, said the statement was “more hawkish” than anticipated and suggests the central bank retains a bias toward further rate increases.

“While we had been expecting the bank to now move to the sidelines for a spell, it appears that it will take a deeper slowdown in domestic spending and core inflation than what we have seen so far to prompt them to stop raising rates,” he said.

Yields on government of Canada bonds rose slightly across the curve, and the Canadian dollar shot up roughly US0.50¢ following the central bank decision. As of 11 AM ET, the loonie was up nearly US1¢, to the US96.40¢ range.