Bank of Canada pushes up base rate by quarter-point to 2.5 pct

OTTAWA (AFP) - The Bank of Canada boosted its overnight rate by a quarter-point to 2.5 percent, and suggested more hikes are coming in the near future.
"The Canadian economy is operating near its production capacity and continues to adjust to global economic developments," the central bank said in a statement Tuesday.
The rate hike, the second consecutive boost by the central bank, was largely anticipated by economists against a backdrop of a strengthening economy and inflation that is creeping toward the bank's target of two percent.
And the bank gave a clear signal that this is not the last of the rate hikes as it reduces the amount of stimulus in the economy and seeks to keep inflation in check.
"Further reduction of monetary stimulus will be required over time to keep inflation on target, with the pace depending on the Bank's continuing assessment of the prospects for factors that affect pressures on capacity and, hence, inflation," the statement said.
The Bank of Canada in September shifted gears and started lifting rates after three rate cuts earlier in the year.
"Looking ahead over the period to the end of 2006, the Bank's base-case projection calls for aggregate demand for Canadian goods and services to expand, on average, at about the same rate as potential output," the statement said.
"Given the effects of higher oil prices and the past appreciation of the Canadian dollar, the Bank projects growth to be slightly less than three percent in 2005, and slightly more than three percent in 2006. With the economy expected to remain near its production capacity throughout this period, core inflation is projected to move back to the two percent target by the end of 2005."
The outlook is slightly below the central bank's forecast from earlier this year, when it projected 3.5 percent growth in 2005 after 2.75 percent in 2004.
As for inflation, the most recent data showed a 1.9 percent year-over-year increase in consumer prices, while the core rate excluding the eight most volatile components showed a 1.5 percent rise.