Monday, May 22, 2006

The Bank of Canada Will Raise Interest Rate on May 24

The BoC will raise interest rate on May 24, 2006 and then pause, deciding that 7 straight increases are enough to keep inflation in check without triggering a currency surge, analysts said.

The central bank will raise its target rate for overnight loans between commercial banks a quarter point to 4.25 %, the highest since August 2001. The rate announcement is scheduled for May 24 at 9 a.m. Ottawa time. The bank will then pause through at least September 2006.

A rate increase will serve as "insurance" against rapid inflation in Canada.

A 7th increase would bring the total gain in the benchmark rate since September to 1.75 percentage points, the largest cumulative move since a period that spanned 1997 and 1998. The central bank said last month it would study the impact of past rate increases before deciding whether to keep going. Higher rates might deter borrowing and spending, slowing growth.

The dollar's rise after his April announcement wasn't closely tied to demand for the country's goods. Some economists say the remark signaled the central bank's unwillingness to keep raising rates after.


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