The Bank of Canada held interest rates unchanged at 3 percent on Tuesday, as expected, but said inflation could rise above 4 percent for the first time since 2003 as commodity price hikes outpace expectations. Even as it flagged inflation as the one development that has taken it by surprise, the central bank did not make any hint of a future rate hike.
Instead, it said that the inflation risk was offset by two other major challenges - a protracted US economic slowdown and financial market turbulence. "Against this backdrop, the bank judges that the current level of the target for the overnight rate remains appropriate," it said in a statement.
"The bank will continue to monitor carefully the evolution of risks, together with economic and financial developments in the Canadian and global economies, and set monetary policy consistent with achieving the inflation target over the medium term."
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