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Central bank raises rate | |
Prime goes to 3.75 per cent
The Bank of Canada has raised its key lending rate for the fifth time in a row and said “modest” rate hikes may be required in the future. The increase was not unexpected by analysts.
The central bank raised its target for the overnight rate to 3.75 per cent from 3.5 per cent, returning it to the same range the rate was in just after the September 11th 2001 terrorist attacks in New York.
The Bank of Canada statement also indicated that future increased may be required, while in previous announcements the statement had said would be required. The Bank of Canada statement issued March 7th said the dollar "has recently moved above the range that had been assumed in the [January] update," and it said that modest rate hikes “may be required” in the months ahead as the economy operates at full capacity. In January, it said they “would be required.
The Canadian dollar eased to 87.17 cents (U.S.) after the report left room for the Bank of Canada to hold off on future rate increases, if need be. Last week, it rose above the 88-cent mark to a 14-year high. In its January monetary policy report update, the bank had pegged the range at between 85 cents and 87 cents.
The sudden appreciation of the dollar could slow economic growth by making Canadian exporters' goods more expensive abroad and hurting their ability to compete with other countries.
"Overall, indications are that the Canadian economy is continuing to operate at its full production capacity," the Bank of Canada statement said. "Some modest further increase in the policy interest rate may be required to keep aggregate supply and demand in balance and inflation on target over the medium term," it added.
Economic growth in the fourth quarter, along with inflation, were in line with the central bank's expectations. The Bank statement says views on the outlook for growth and inflation, including the assessment of risks, haven't changed since January.
The Bank of Canada is scheduled to make its next rate decision on April 25th and will provide details on economic developments and risks in the next monetary policy report two days after that. (CREA 07/03/2006)
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