Bank of Canada raises rates to 4.25%

It was a bit of a guessing game this time around, but in the end, Canada’s central bank did as most analysts expected, raising its key overnight lending rate 25 basis points to 4.25%.

It’s the Bank of Canada’s seventh consecutive rate hike since last fall. The big banks quickly followed suit, raising their prime lending rates a quarter-point to 6%.

“The strong momentum in the global and Canadian economies has continued, although there has recently been an increased degree of volatility in commodity markets, foreign exchange markets, and financial markets more generally,” the central bank said in a statement accompanying today’s interest rate announcement. “Recent Canadian data confirm that domestic demand remains solid, and that both CPI and core inflation are evolving largely in line with the bank’s expectations.”

With the increase, the target for the overnight rate is now at a level that is expected to keep the Canadian economy on the path projected in the bank’s last monetary policy report and to return inflation to the 2% range, the statement continued.

That language suggests the central bank has “officially” paused on rate hikes, says Michael Gregory, senior economist at BMO Nesbitt Burns. “The data, inevitably, will determine the length of pause and the post-pause policy direction,” he adds. “However, the bar for another rate hike has been set quite high.”

The Bank of Canada’s next interest rate announcement is scheduled for July 11.

(05/24/06)

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.