Tuesday, June 1, 2010

BOC Ups Rate To 0.50%,Further Hikes "Weighed Carefully"

( DJ ) 06/01 09:04AM =DJ BOC Ups Rate To 0.50%,Further Hikes "Weighed Carefully"

OTTAWA (Dow Jones)--The Bank of Canada Tuesday became the first G7 monetary
authority to raise interest rates since the credit crisis, but said any
further increases would have to be weighed carefully against domestic and
global economic developments.
The Bank raised its benchmark overnight rate by 25 basis points to 0.50%.
The rate had been at a record low 0.25% since April 2009.
The highly anticipated decision underscores the Bank's dilemma as it weighs
a strong domestic economy against concerns about the impact of the euro-zone
debt crisis on a global economic recovery that it acknowledged to be
"increasingly uneven" across countries.
The Bank said "considerable" monetary stimulus is still in place.
"Given the considerable uncertainty surrounding the outlook, any further
reduction of monetary stimulus would have to be weighed carefully against
domestic and global economic developments," the Bank said in its interest rate
statement.
The widely expected rate hike is the Bank's first since July 2007 and the
first under the watch of Governor Mark Carney who took over the top job in
February 2008. The Bank also re-established normal functioning of the
overnight market, including reverting to a 50 basis point operating band for
the rate.
The Canadian dollar was little changed immediately after the rate decision
was published at 9:00 a.m. EDT. The U.S. dollar was quoted at C$1.0490 from
C$1.0492 just before the release.
The Bank said the euro-zone debt woes are likely to result in higher
borrowing costs and more rapid tightening of fiscal policy in some countries.
The Bank pointed out that it had identified this as a key downside risk in the
April Monetary Policy Report.
"Thus far, the spill-over into Canada from events in Europe has been limited
to a modest fall in commodity prices and some tightening of financial
conditions," the Bank said.
It said global economic recovery is "increasingly uneven" across countries.
In Canada, it said activity is unfolding "largely as expected."
Web site: http://www.bankofcanada.ca

-By Nirmala Menon, Dow Jones Newswires; 613-237-0668;
nirmala.menon@dowjones.com

jstomenson@wellwest.ca