Highlights
As expected, the Bank of Canada left its policy interest rate at 4.25 percent for the 13th time but signaled that rates could be increased in the future. The Bank last increased its rate in May 2006 when it raised it to its current level. First quarter gross domestic product will be released on May 31, however fourth quarter GDP was up 0.4 percent and 2.3 percent when compared with the same quarter a year ago. Inflation as measured by the Bank of Canada's core consumer price index was up 2.5 percent on the year in April. Although creeping up, it remains within the target zone of 1 percent to 3 percent.

In its statement, the Bank said

"Information received since the April Monetary Policy Report (MPR) indicates that economic growth and inflation in Canada in the first part of this year have been stronger than the Bank was expecting. In April, both total CPI inflation, at 2.2 per cent, and core inflation, at 2.5 per cent, were above expectations. On the basis of available information, the Canadian economy is likely to have grown at an annual rate of about 3 1/2 per cent in the first quarter of this year - a full percentage point higher than was estimated in the MPR. The Bank now judges that there is somewhat greater excess demand in the economy than was thought to be the case in April. U.S. economic activity has come in largely as expected and continuing robust growth outside North America has maintained the global demand for, and high prices of, many commodities produced in Canada. Against this overall backdrop, the Canadian dollar has risen appreciably above the range assumed in the Bank's April projection.

"On balance, the Bank judges that there is an increased risk that future inflation will persist above the 2 per cent inflation target and that some increase in the target for the overnight rate may be required in the near term to bring inflation back to the target."