BOC raises rates to +1%

The Bank of Canada today announced that it is raising its
target for the overnight rate by one-quarter of one percentage
point to 1 per cent. The Bank Rate is correspondingly 1 1/4 per
cent and the deposit rate is 3/4 per cent.

The global economic recovery is proceeding but remains
uneven, balancing strong activity in emerging market economies
with weak growth in some advanced economies. In the United
States, the recovery in private demand is being held back by high
unemployment and recent indicators suggest a more muted recovery
in the near term.

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. Going
forward, consumption growth is expected to remain solid and
business investment to rise strongly. Both are being supported by
accommodative credit conditions, which have eased in recent weeks
mainly owing to sharp declines in global bond yields.

The Bank now expects the economic recovery in Canada to be
slightly more gradual than it had projected in its July Monetary
Policy Report (MPR), largely reflecting a weaker profile for U.S.
activity. Inflation in Canada has been broadly in line with the
Bank’s expectations and its dynamics are essentially unchanged.

Against this backdrop, the Bank decided to increase its
target for the overnight rate to 1 per cent. As a result of
monetary policy measures taken since April, financial conditions
in Canada have tightened modestly but remain exceptionally
stimulative. This is consistent with achieving the
2 per cent inflation target in an environment of significant
excess supply in Canada.

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

Bloomberg

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