Bank of Canada Raises Overnight Rate Target by 1/4 percent
Tuesday, July 20th, 2010As was expected the Bank of Canada, today, announced that it is raising its target for the overnight rate by one-quarter of one percentage point to 3/4 per cent. This against the backdrop of recent fears, from some economic commentators, of a double dip recession in the world economy.
Canada is the first of the G8 countries to twice increase the overnight lending rate in two successive meetings. The Canadian economy activity is still being lead by government and consumer spending. Employment growth has been resumed but business investment is being held back due to the global uncertainties.
The Bank has adjusted its projected growth forecast downwards to 3.50% in 2010, 2.90% in 2011 and 2.20% in 2012. This revision was prompted by a slightly weaker profile for global growth and a more modest consumption growth in Canada (partly due to increased rates). The Bank is of the opinion that by increasing the overnight rate to 0.75% there is still considerable monetary stimulus in place to grow the Canadian economy whilst still achieving the 2% inflation target. Both total CPI and core inflation are expected to remain near the 2% mark through to the end of 2011.
Some economic commentators have warned that the Bank must be careful not to increase the overnight rate too quickly for fear of dumping Canada back into a recession. The most notable of these commentators has been CIBC World Markets.
The next scheduled overnight rate announcement is scheduled for September 8, 2010.