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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: zonder who wrote (13659)	10/19/2004 1:53:17 PM
From: mishedlo	Respond to of 116555

Bank of Canada lifts rates by quarter point as expected - Tuesday, October 19, 2004 3:17:43 PM afxpress.com CHICAGO (AFX) - The Bank of Canada delivered on an anticipated interest-rate increase Tuesday, raising its key overnight rate by a quarter point to 2.5 percent The bank said higher rates are necessary to offset increased inflation risks tied to rising global energy prices Tuesday's increase follows a quarter-point increase at the bank's September meeting. "In a clear signal to the markets, the Bank of Canada noted that further reduction of monetary stimulus will be required over time to keep inflation on target," said Charmaine Buskas, an analyst with Economy.com "But at the same time, there are clearly risks to the outlook," she said. "Most notably, oil prices have risen well above previous assumptions of $38 a barrel and the Canadian dollar has also appreciated more than expected." "The Canadian economy is operating near its production capacity and continues to adjust to global economic developments. Recently, world oil prices have risen well above the bank's earlier assumptions and the Canadian dollar has appreciated further," the central bank said. Anticipating that demand for Canadian goods will run at the pace of production, and factoring in rising oil prices and a strengthening currency, the Canadian central bank estimates economic growth at slightly less than 3 percent next year and slightly more than 3 percent in 2006. That's a slight downward revision from the bank's previous statement Core inflation, which excludes food and energy sectors, is projected to move back to the bank's 2 percent target by the end of 2005. But, reflecting higher world oil prices, total CPI inflation is projected to move well above core inflation in the first half of 2005 and fall slightly below core inflation in 2006, the bank said The expected rate increase didn't immediately bolster the Canadian dollar, although it did improve against its U.S. counterpart in late-morning North American trading. The Canadian dollar was held in check as oil futures were trading close to $52 a barrel after reaching record territory above $55. At last check, one U.S. dollar would buy C1.2541, a loss of 0.3 percent from late trading on Monday "Given the market is likely well short of U.S. dollar-Canadian dollar currently [the U.S. currency hit an 11-year low earlier this month], we look for the 'loonie' to come under some profit-taking pressure now that the BOC decision is out of the way," said Ron Simpson, currency analyst with Action Economics The central bank also raised the operating band for its overnight rate by a like amount and lifted the lesser-used Bank Rate to 2.75 percent