Prime rate increase

Bank of Canada increases overnight rate target to 1 per cent – Not a surprise.

The Bank of Canada announced yesterday that it is raising its target for the overnight rate by one-quarter, thus changing Prime to 3.00%.

Economic activity in Canada was slightly softer in the second quarter than the Bank had expected. Going forward, growth is expected to remain solid and business investment to rise strongly. Both are being supported by accommodative credit conditions, which have eased in recent weeks mainly owing to sharp declines in interest rates around the world.

The Bank now expects the economic recovery in Canada to be slightly more gradual than it had projected in its July Monetary forecast, largely reflecting a weaker growth picture in the U.S. Inflation in Canada has been broadly in line with the Bank's expectations and its dynamics are essentially unchanged.

The next Bank of Canada rate announcement will be on Oct 19, 2010.