Wendy Betts

Bank of Canada leaves key interest rate at 4.25%

Although inflation continues to be a concern, the key interest rate will remain at 4.25 per cent, the Bank of Canada announced Tuesday.

The Bank announced Tuesday that its key lending rate will remain unchanged, even though volatile energy prices are driving inflation above the bank's key two per cent target.

CTV's business editor Linda Sims described the decision as "good news for our manufacturers" who, she said, "have been looking for a break."

Appearing on Newsnet, Sims said Bank of Canada Governor David Dodge had "remained true to his word" by keeping the rate the same.

"He's painted a picture of a fairly robust domestic economy, but not one that's so overheated he feels he has to raise interest rates at this time," Sims said.

"He sees some weakening in the U.S. economy ... he sees problems in our export sector... but he does not seem concerned about inflation."

Inflation

The Bank said the core inflation rate, which excludes energy prices, had reached two per cent "sooner than expected."

The Canadian economy is expected to cool its pace next year, the Bank noted, because the higher Canadian dollar is driving up the price of exported goods.

The dollar, combined with an expected cooling of the U.S. economy, is expected to help bring the domestic economy back to more reasonable growth, the bank predicts.

Statistics Canada last week reported the jobless rate was holding firm at 6.1 per cent, prompting economists to predict that the Bank would likely take a break from its rate hikes.

The Bank said it will "monitor global and domestic economic developments, including adjustments in the Canadian economy."

The Bank will update its economic outlook when it releases its latest monetary policy report Thursday.

The next scheduled date for announcing the overnight rate target is September 6.