Bank Rate Raised by 1 Percentage Point

The Bank of Canada today raised its Bank Rate by one percentage point to 6 per cent. The Bank's operating band for the overnight rate was similarly adjusted to a range of 5½ to 6 per cent.

Today's increase in interest rates is aimed at providing support for the Canadian dollar in order to bolster confidence, while preserving monetary conditions that will help to sustain the present non-inflationary expansion of the economy.

For some time now, the Canadian dollar has been under persistent downward pressure. In part, this has reflected an adjustment to increased economic uncertainty in Asia, the associated downward pressure on the prices of the primary commodities that Canada exports, and the developing problems in Russia. However, the currency decline has more recently developed a momentum that, together with the upper pressure on medium- and longer-term interest rates, signals a diminishing of confidence in Canadian dollar investments. At the same time, the depreciation of the currency has resulted in a substantial easing of monetary conditions. While some of this easing has been warranted by economic developments, it is the Bank's view that it has become excessive.

The crucial economic trends in Canada remain positive, supported by a low inflation environment, a declining public sector debt-to-GDP ratio and strong private sector investment. Even in the face of an uncertain international economic environment, the Canadian economy continues to expand at a solid underlying pace, spurred by consumer and investment spending in Canada and by the high level of domestic demand in the United States.