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Good And Bad News - Frost__2001 - 05-25-2006
Bank of Canada raises key interest rate to 4.25%
Updated Wed. May. 24 2006 9:37 AM ET
CTV.ca News Staff
The Bank of Canada has boosted its key interest rate by a quarter-point to 4.25 per cent -- marking the seventh consecutive rate hike since last fall.
At the same time, the central bank hinted it may now take a break from raising its policy interest rate any further -- signalling that rates are now at a level where the economy can grow at a healthy pace without triggering inflation.
"With today's increase, the target for the overnight rate is now at a level that is expected to keep the Canadian economy on the base-case path projected,'' central bankers said in a statement released Wednesday.
However, the central bank warned it will be keeping a close watch for any risks to global and Canadian economic growth.
"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 statement said.
"The bank will monitor global and domestic economic and financial developments, including adjustments in the Canadian economy.''
Last month, core inflation slipped slightly to 1.6 per cent from 1.7 per cent the month before.
That led some analysts to suggest the central bank might not actually raise rates again until at least July -- its next scheduled opportunity to change rates.
However, others argued that with the strong job market and unemployment at a 30-year low, central bankers were alert to possible future inflation pressures.
Booming retail sales figures are just the latest sign of an economy the central bank says is growing at full capacity.
It has predicted gross domestic product growth of 3.1 per cent this year -- the fastest pace in six years.
The Bank of Canada's key rate directly affects some consumer borrowing costs, such as floating mortgages and the prime rate the major banks charge their best customers.
With files from the Canadian Press