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Bank of Canada holds short-term interest rates unchanged at 3 percent in surprise move

Bank of Canada holds short-term interest rates unchanged at 3 percent in surprise move

The Bank of Canada held its policy-setting interest rate unchanged at 3 percent Tuesday, surprising many economists who had expected a quarter-point trim to stabilize a shaky economy.
The central bank said Tuesday that although a risk of weak growth remains, the risk of inflation stoked by higher energy prices has become too great to allow continued cutting of interest rates.
Canada's overnight rate has dropped from 4.5 percent since December, including sharp half-point cuts in March and April.
The tone of the Bank of Canada statement "all but shut the door on further rate cuts," commented BMO Capital Markets economist Douglas Porter.
"This is quite an abrupt turn from the last decision date, when the bank declared that `further monetary stimulus would likely be required.'"
The Canadian dollar, worth 100.70 US cents at the end of May, sagged briefly under 97 US cents overnight, then jolted up to 98.03 US cents after the bank's announcement, a gain of 0.14 cent from Monday's close.
A recent Statistics Canada report stated that year-over-year inflation stood at 1.7 percent in April. The bank said Tuesday that headline inflation will rise above 3 percent later this year if current energy prices persist. The bank also noted that core inflation _ excluding volatile energy and food prices _ is expected to stay under two percent.
Meanwhile, the bank expects the economy, which shrank at an annualized rate of 0.3 percent in the first quarter, will pick up later this year and accelerate in 2009.
Meanwhile, Federal Reserve Board chairman Ben Bernanke has indicated the next move in U.S. interest rates could be upward.
Bernanke said late Monday that American growth looks weak in the current quarter, but "the risk that the economy has entered a substantial downturn appears to have diminished over the past month or so."
He stressed inflation concerns, noting that sharply rising energy prices have added to the risks of inflation, and stressed that the Fed "will strongly resist an erosion of longer-term inflation expectations."
This strengthened expectations that the U.S. central bank will hold the cost of short-term money steady at its next meeting June 24-25 and probably well beyond.
The European central bank has also warned it may hike rates because of concern that swelling costs of oil and food could provoke an inflationary spiral.
The Bank of Canada's next scheduled date for announcing the overnight rate target is July 15.


Updated : 2021-05-19 08:57 GMT+08:00