Bank of Canada raises rates

The Bank of Canada is raising its target for the overnight rate by 25 basis points to 1%, despite what the bank calls an “uneven” economic recovery among advanced economies.

“Economic activity in Canada was slightly softer in the second quarter than the Bank had expected, although consumption and investment have evolved largely as anticipated,” the Bank said it its announcement. “Going forward, consumption growth is expected to remain solid and business investment to rise strongly.”

The Bank suggests that both consumption and investment are benefiting from loose credit, which has become even more accommodative thanks to declining global bond yields.

Today’s slight tightening in monetary policy should help to hold inflation to the Bank’s 2% target.

“Any further reduction in monetary policy stimulus would need to be carefully considered in light of the unusual uncertainty surrounding the outlook,” the Bank said.

Risks to the Canadian recovery come from south of the border, where “the recovery in private demand is being held back by high unemployment and recent indicators suggest a more muted recovery in the near term.”

(09/08/10)