The recent upheaval in global credit markets may cause the Bank of Canada to reconsider raising interest rates next week.

Pierre Duguay, deputy governor at the Bank of Canada, said Monday night that despite projections when it last raised rates in July that “some modest further increase in the policy rate may be required.”

“Domestic demand in Canada has remained robust, against the backdrop of strong labour and housing markets. But given recent events in global credit markets, we need to assess the extent to which the risks around our July projection have shifted,” Duguay said in a speech to the Canadian Association for Business Economics, in Kingston, Ont.

“Specifically, we are asking ourselves two questions: First, how much greater is the risk to the Canadian economy now posed by developments in the U.S. economy? And second, to what extent would the re-pricing of credit risk lead to a sustained tightening of credit conditions in Canada?”

The Bank of Canada raised its key interest rate by one-quarter of a percentage point to 4.5% July 10 and signalled strongly at the time that a second rate hike was likely in September.

Since then, a meltdown in the U.S. subprime mortgage market has upset world markets and prompted central banks, including the Bank of Canada, to intervene with cash infusions to boost liquidity..

“Let me emphasize that the Bank of Canada’s operations to provide liquidity do not represent a change in the stance of monetary policy, but are meant to meet increased demand for liquidity to help re-establish well-functioning financial markets,” Duguay said.

The Bank of Canada’s next rate announcement is on September 5.