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News: Canada hints at rate hikes

Wed, 30 May 07

The Bank of Canada left overnight rates unchanged at 4.25% Tuesday, but hinted at hikes to come in its much-anticipated statement. However, the timing of possible rate increases remained unclear...

"Information received since the April Monetary Policy Report indicates that economic growth and inflation in Canada in the first part of this year have been stronger than the bank was expecting," said the bank in the statement accompanying the rate announcement.

"The bank judges that there is an increased risk that future inflation will persist above the two per cent inflation target and that some increase in the target for the overnight rate may be required in the near term to bring inflation back to the target."

The bank pointed to the fact that, in April, both total CPI inflation, at 2.2%, and core inflation, at 2.5%, were above expectations. It estimated that the Canadian economy is likely to have grown at an annual rate of about 3.5% in the first quarter of this year - a full percentage point higher than estimated.

"The Bank now judges that there is somewhat greater excess demand in the economy than was thought to be the case in April," the bank said.

Growth outside North America 'robust'

The bank pointed out that "U.S. economic activity has come in largely as expected and continuing robust growth outside North America has maintained the global demand for, and high prices of, many commodities produced in Canada."

Against this overall backdrop, the Canadian dollar has risen appreciably above the range assumed in the bank's April projection, the bank added.

The dollar jumped to new 30-year high on the bank's rate announcement in early trading Tuesday.

 

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