Bank Rate Raised by ¼ Percentage Point to 5 Per Cent

The Bank of Canada today raised its Bank Rate by ¼ of one percentage point to 5 per cent. The operating band for overnight interest rates was correspondingly increased, and the Bank's target for the overnight rate is now 4¾ per cent.

This action follows the decision yesterday by the U.S. Federal Reserve to raise its target level for the federal funds rate to 5½ per cent. The Federal Reserve indicated that the expansion of activity in the U.S. economy continues in excess of its growth potential and expressed concern about the inflation risk.

Given the implications of U.S. economic and financial developments for Canada, together with the recent evidence of robust domestic demand growth, this increase in interest rates by the Bank is designed to keep inflation well within the Bank's 1 to 3 per cent target range. In this way monetary policy continues to support a sustainable rate of growth in output and employment in Canada.

The Bank's November Monetary Policy Report, to be published today, describes in detail the Bank's assessment of the trends in the economy over the next 18 months and the importance of taking timely action to preserve Canada's low inflation environment.