Bank of Canada Keeps Key Interest Rate at 4.25 %

The Bank of Canada kept its key overnight lending rate at 4.25 % Tuesday, Dec 5, 2006, which indicates the bank isn't likely to start shaving rates before next spring 2007.

In its last rate-setting announcement of the year.

The BoC bank hasn't changed the rate since May 2006, when it rose a quarter of a percentage point.

Tuesday's stand-pat decision was widely expected by analysts, who say they don't expect a rate change for about six months, when the bank may shave it by a quarter-point.

Despite a weakening economy, the bank is waiting for more evidence before changing their view of the risks.

The decision comes amid mixed economic signals. Inflation is higher than the BoC bank would like and gross domestic product numbers are lower than expected, but employment prospects remain good.

Core inflation, at 2.3 per cent, is higher than the bank would like to see, but it expects that number to slip to 2 % by the middle of next year 2007.

The main upside risk relates to the momentum in household spending and housing prices. The main downside risk is that the U.S. economy could slow more sharply than expected.