Bank of Canada raises rates

The Bank admits that its move is a derivative of yesterday’s Fed move. “Strong U.S. demand has been benefiting the Canadian export sector. Increased export sales, together with the robust momentum of domestic spending in Canada, have led to a more rapid economic expansion than expected.” Although inflation remains subdued the Bank is worried that production capacity is quickly being spent. It also mentions the looming
effect of receent increases in oil prices.

Regarding future rate increases the Bank says, “This adjustment in the Bank Rate is designed to resist any tendency for these developments to lead to an increase in the trend of inflation in Canada. It is by taking timely action, as required, to keep future inflation inside the 1 to 3 per cent target range that the Bank of Canada can help to ensure a
sustainable expansion of economic activity and employment. “

The Bank has also increased the operating band for the overnight rate. The Bank’s target for the overnight rate moved to 5.25%.