Bank of Canada keeps target for the overnight rate at 4 1/2 per cent



    OTTAWA, Sept. 5 /CNW Telbec/ - The Bank of Canada today announced that it
is maintaining its target for the overnight rate at 4 1/2 per cent. The
operating band for the overnight rate is unchanged, and the Bank Rate remains
at 4 3/4 per cent.
    Near-term prospects for economic growth outside North America appear to
be slightly stronger than anticipated in the July Monetary Policy Report
Update (MPRU), while near-term economic prospects for the United States are
weaker than expected. It now seems likely that the adjustment in the U.S.
residential housing sector will be more pronounced and protracted, exacerbated
by recent developments in financial markets. On balance, this implies weaker
demand for Canadian exports than had been expected at the time of the July
MPRU.
    In Canada, total and core CPI inflation in July, at 2.2 per cent and
2.3 per cent respectively, continued to be above the inflation target but
generally in line with the Bank's expectations. The Canadian dollar has also
largely traded in the range assumed in the July MPRU. At the same time, the
pace of economic growth in the first half of this year was above the Bank's
expectations. It now appears that the Canadian economy is operating further
above its production potential than was estimated in July. Domestic demand
remains robust, buoyed by a continuing strong labour market and
higher-than-expected increases in home sales and prices. However, recent
developments in financial markets have led to some tightening of credit
conditions for Canadian borrowers, which should temper growth in domestic
demand.
    Against this background, the Bank judges that the current level of the
target for the overnight rate is appropriate. However, there are significant
upside and downside risks to the outlook for inflation. On the upside, there
is a possibility that household demand in Canada could be stronger than
anticipated, while on the downside the ongoing adjustment in the U.S. housing
sector could be more severe and spill over to the U.S. economy more broadly.
In addition, there is uncertainty about the extent and duration of the
tightening of credit conditions in Canada and, hence, about the tempering
effect this will have on growth in domestic demand.
    The Bank will continue to closely monitor evolving economic and financial
developments. A full update of the Bank's outlook for growth and inflation,
including risks to the projection, will be set out in the Monetary Policy
Report, to be published on 18 October 2007.

    Information note:

    The Bank of Canada's next scheduled date for announcing the overnight
rate target is 16 October 2007.




For further information:

For further information: Jeremy Harrison, (613) 782-8782


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