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2 hours, 42 minutes ago
OTTAWA (CP) - The Bank of Canada boosted its key policy interest rate Wednesday and hinted that there could be more increases.
The central bank raised its key overnight interest rate by one-quarter of a percentage point to 2.25 per cent, a move widely expected by financial markets. The move was matched by several chartered banks, which increased their prime lending charged to the banks' best customers.
Royal Bank, TD Canada Trust and Scotiabank were among those that increased their prime rate by a quarter-point to an even four per cent effective Thursday.
CIBC also increased several of its mortgage rates by small amounts, ranging from a quarter-point for some short-term mortgages to 0.10 of a percentage on longer-term arrangements.
Other consumer borrowing costs will likely also be indirectly influenced to shift upwards, following the Bank of Canada's trend.
In a statement, central bankers warned that Canada's growing economy is pushing up inflation and that will likely lead to higher interest rates down the road.
"Economic growth in the first half of this year was somewhat stronger than the bank had been expecting," largely due to strong demand for Canadian exports, central bankers noted.
Looking forward, that demand will probably continue at such strong levels that it could outpace production, fuelling inflation - the central bank's greatest enemy.
"With the economy operating close to its capacity, monetary stimulus needs to be reduced to avoid a buildup of inflationary pressures," the central bank said.
But in its statement Wednesday, central bankers also warned there are still uncertainties, such as continued high oil prices, clouding the economic outlook.
That could impact the world's appetite, as well as domestic demand, for other Canadian resources and other products and services. That would, in turn, have a strong impact on economic growth.
A strengthening economy has led to Bank of Canada to shift policy from the rate cuts it was making as recently as last spring when it was aiming to boost GDP (news - web sites).
It last lowered borrowing costs in April, when the central bank's key policy rate fell to two per cent - a low rarely seen in the last 44 years.
Since then, the economy has shown strong signs of improvement.
Last week, markets were surprised when Statistics Canada reported the economy grew by 4.3 per cent in the second quarter. It also revised upwards first quarter GDP growth to three per cent.
Signs of strong growth - also reflected in rising inflation figures - have led the central bank to drop more hints of tighter borrowing costs to come.
The core measure jumped to 1.9 per cent in July, a bit higher than expected but further justification for higher rates to come.
Central bankers aim to hold core inflation, which excludes volatile food and energy prices, at about two per cent.
Anticipating the rate hike Wednesday, financial markets drove up the value of the dollar by three-quarters of a cent Tuesday.
It ended trading at 77.69 cents US, up 0.76 of a cent from last Friday's close.
But some of those gains were unwound in early trading Wednesday, in part because the rate hike was so widely expected.
By late morning, the loonie actually fell by 0.20 to 77.49 cents US.
Many analysts expect the Bank of Canada will continue to raise interest rates in quarter-point increments at its next two opportunities, in October and December, to end the year with an overnight rate of 2.75 per cent.
That will be followed, many expect, by further increases in 2005 to bring the bank's policy rate closer to more neutral levels of around four per cent.
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Copyright © 2004 Yahoo! Inc.
OTTAWA (CP) - The Bank of Canada boosted its key policy interest rate Wednesday and hinted that there could be more increases.
The central bank raised its key overnight interest rate by one-quarter of a percentage point to 2.25 per cent, a move widely expected by financial markets. The move was matched by several chartered banks, which increased their prime lending charged to the banks' best customers.
Royal Bank, TD Canada Trust and Scotiabank were among those that increased their prime rate by a quarter-point to an even four per cent effective Thursday.
CIBC also increased several of its mortgage rates by small amounts, ranging from a quarter-point for some short-term mortgages to 0.10 of a percentage on longer-term arrangements.
Other consumer borrowing costs will likely also be indirectly influenced to shift upwards, following the Bank of Canada's trend.
In a statement, central bankers warned that Canada's growing economy is pushing up inflation and that will likely lead to higher interest rates down the road.
"Economic growth in the first half of this year was somewhat stronger than the bank had been expecting," largely due to strong demand for Canadian exports, central bankers noted.
Looking forward, that demand will probably continue at such strong levels that it could outpace production, fuelling inflation - the central bank's greatest enemy.
"With the economy operating close to its capacity, monetary stimulus needs to be reduced to avoid a buildup of inflationary pressures," the central bank said.
But in its statement Wednesday, central bankers also warned there are still uncertainties, such as continued high oil prices, clouding the economic outlook.
That could impact the world's appetite, as well as domestic demand, for other Canadian resources and other products and services. That would, in turn, have a strong impact on economic growth.
A strengthening economy has led to Bank of Canada to shift policy from the rate cuts it was making as recently as last spring when it was aiming to boost GDP (news - web sites).
It last lowered borrowing costs in April, when the central bank's key policy rate fell to two per cent - a low rarely seen in the last 44 years.
Since then, the economy has shown strong signs of improvement.
Last week, markets were surprised when Statistics Canada reported the economy grew by 4.3 per cent in the second quarter. It also revised upwards first quarter GDP growth to three per cent.
Signs of strong growth - also reflected in rising inflation figures - have led the central bank to drop more hints of tighter borrowing costs to come.
The core measure jumped to 1.9 per cent in July, a bit higher than expected but further justification for higher rates to come.
Central bankers aim to hold core inflation, which excludes volatile food and energy prices, at about two per cent.
Anticipating the rate hike Wednesday, financial markets drove up the value of the dollar by three-quarters of a cent Tuesday.
It ended trading at 77.69 cents US, up 0.76 of a cent from last Friday's close.
But some of those gains were unwound in early trading Wednesday, in part because the rate hike was so widely expected.
By late morning, the loonie actually fell by 0.20 to 77.49 cents US.
Many analysts expect the Bank of Canada will continue to raise interest rates in quarter-point increments at its next two opportunities, in October and December, to end the year with an overnight rate of 2.75 per cent.
That will be followed, many expect, by further increases in 2005 to bring the bank's policy rate closer to more neutral levels of around four per cent.
-----------------------------------------------------
Copyright © 2004 Yahoo! Inc.
