Canada's Central Interest Rate Hike

OTTAWA - Jul 16/02 - SNS -- The Bank of Canada raised its target for the overnight rate by one-quarter of one percentage point to 2 3/4%. The operating band for the overnight rate is correspondingly increased, and the Bank Rate is now 3%.

Since the Bank's last interest rate announcement on 4 June, the economic recovery in Canada has remained stronger than expected and has broadened across sectors. This momentum has been reflected in continued strong growth in employment and spending by households, as well as in some pickup of investment in machinery and equipment. As a result, the economy has been moving towards full production capacity more quickly than anticipated. Core inflation, which was 2.2% in May, has remained a little higher than projected.

There are both positive and negative risks to the Canadian economic outlook. On the positive side, with considerable monetary stimulus in the economy, growth in Canada could very well continue to exceed expectations. On the negative side, the main risk is the marked uncertainty associated with recent global corporate and financial market developments and their potential effects on confidence and world economic growth.

The subscriber version of the article is available by Clicking here