In its accompanying policy statement, the central bank noted that since its last interest rate announcement on December 3, “both core and total CPI inflation have risen somewhat more than expected. This reflects not only a stronger-than-anticipated increase in insurance premiums but also some broadening of price pressures.”

The bank indicated that it is poised to raise rates, saying, “Based on analysis of the inflation data and other indicators of pressures on capacity, it is the Bank’s view that the economy may be operating closer to its production capacity than previously believed.”

Nevertheless, it also said, “As expected, economic growth in Canada slowed in the second half of 2002 to a growth rate close to potential, constrained by the effects of financial and geopolitical uncertainties and weakness in the global economy. While conditions in financial markets are improving, significant geopolitical and economic uncertainties remain.” This is why the bank is leaving rates unchanged.

“However, with the stance of monetary policy currently very stimulative, a reduction of stimulus will be required in order to return inflation to the 2% target over the medium term,” it concluded.

The next rate announcement date is March 4.