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The Bank of Canada raised its benchmark interest rate on September 8th for a third time this year, and said it expects households and businesses to spend even as the outlook for the U.S. economy weakens.
The bank raised its target rate for overnight loans between commercial banks to 1 percent from 0.75 percent. While the country's recovery will be "slightly" slower than it had projected because of a weaker outlook for the U.S. economy, inflation is in line with expectations, it said.
"Consumption growth is expected to remain solid and business investment to rise strongly," the Bank of Canada said in a statement. "Both are being supported by accommodative credit conditions, which have eased in recent weeks mainly owing to sharp declines in global bond yields."
"The overall impression I'm left with is they're a little bit hawkish or bent on further rate hikes than I had been expecting," said Doug Porter, deputy chief economist with Bank of Montreal's BMO Capital Markets unit in Toronto. "The fact is that they're just not fazed by the slowdown we've seen in the U.S. or Canada."
Porter said he may reconsider his call that the central bank will pause on rate increases for the rest of the year.
Canada's central bank targets a 2 percent inflation rate. The Bank of Canada projected in July that overall and core inflation will advance at about that pace through 2012 as the economy returns to full capacity after last year's recession. The forecast anticipates a "gradual" rise in interest rates to keep inflation at that pace, the central bank said at the time.
Canada's three interest rate increases since June are the first among Group of Seven countries after last year's global recession. The country has recovered from the slump faster than the U.S., having already returned to pre-recession levels of employment. The bank said that while financial conditions in Canada have "tightened modestly" because of the increases, monetary policy remains "exceptionally stimulative."
Courtesy of Bloomberg.com
