By James Langton

(December 5 – 09:15 ET) – As expected, the Bank of Canada is keeping the bank rate at 6%, and speaking hawkishly about the prospect of future inflation.

The central bank says the operating band for the overnight rate is unchanged, and its target for the overnight rate remains at 5.75%.

According to the bank, “Economic data continue to indicate that the rate of expansion of output is above the Canadian economy’s long-run growth potential,” suggesting a hawkish stance. The bank says that although U.S. demand is slowing, domestic demand is taking up the slack.

Canada’s central bank notes that consumer price inflation is in line with expectations, although energy prices have accelerated its growth. “Monetary conditions have supported the growth of aggregate demand, and pressures on the economy’s production capacity are expected to increase,” it says.

Although it admits, “the economy’s ability to expand without generating rising inflationary pressures could be greater than estimated. Accordingly, the bank will continue to assess carefully the balance of aggregate demand and supply in the economy and the risks to the future trend of inflation.”

The bank insists that it will vigilantly monitor the effect of rising energy prices on core inflation, but it also mentioned the possible inflationary effect of a weak dollar, suggesting it may hike rates to defend the dollar. It concludes, “In the bank’s judgment, the factors at work in the economy point to core inflation rising to the midpoint of the target range over the coming year.”