Thursday, April 27, 2006

Bank of Canada raises key interest rate to 4%

Updated Tue. Apr. 25 2006 11:29 PM ET News Staff
The Bank of Canada boosted its trend-setting overnight rate by a quarter of a percentage point to four per cent on Tuesday.
The latest hike will impact the prime interest rate charged by commercial banks, affecting variable mortgage rates, as well as the cost of car loans and lines of credit.
This marks the sixth consecutive rate increase by the Bank of Canada since last summer -- when it was 2.5 per cent -- and some are wondering how many more rate hikes could be on the way.
In its statement today, central bankers 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.'
The Bank of Canada said the global economy is strong. 'At the same time, global competition and the past appreciation of the Canadian dollar continue to pose challenges for a number of sectors of the economy.'
Meanwhile, the core inflation rate appears to be staying within the central bank's target band of one to three per cent. Data released last week shows core inflation held steady at 1.7 per cent in March.
Canada's annual inflation rate remained unchanged at 2.2 per cent in March as higher gasoline prices were offset by lower prices for computer gear and clothing.
'Against this backdrop, the Bank decided to raise its target for the overnight rate,' said central bankers.
CTV's business editor Linda Sims said this probably means at least one rate hike is likely on the way. However, the rate is still quite low, compared to historic levels.
'We have got good job growth and decent economic growth in this country," Sims told CTV Newsnet.
"It will not put much of a crimp on the economy, including the housing market, going forward."
The next announcement on the overnight rate is scheduled for May 24.
Looking forward, the Bank of Canada predicts the Canadian economy will grow by 3.1 per cent in 2006, 3.0 per cent in 2007, and 2.9 per cent in 2008.

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