如期加息:Bank of Canada raises interest rate to 4.50 pct

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OTTAWA, July 10 (Reuters) - The Bank of Canada raised its key overnight interest rate on Tuesday by one-quarter point to 4.50 percent and kept the door open to further hikes, saying inflation has been persistently higher than expected.

4 p6 H. I" r' Q. s4 R7 i"Some modest further increase in the overnight rate may be required to bring inflation back to the target over the medium term," the central bank said in a statement explaining its first rate hike since May 2006.

The bank tempered its hawkish tone by saying that the risks to its inflation outlook appear to be roughly balanced. On the one hand, stronger-than-expected household demand in Canada could push inflation higher while on the other, an appreciation of the Canadian dollar and the U.S. housing downturn could help keep prices steady.
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The bank now sees both total inflation and core inflation, which excludes volatile items, staying above its 2 percent target until early 2009. Previously, it had seen total inflation declining to 2 percent by mid-2008 and core inflation reaching the target by the end of 2007.
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The economy is operating further above its production potential than was expected in April, the bank said, and it now sees the Canadian economy expanding by 2.5 percent in 2007 instead of 2.2 percent previously. Growth will moderate in 2008 and 2009 to about 2.5 percent annually on the effects of the strong Canadian dollar and higher interest rates, the bank said. It previously forecast growth of 2.7 percent in both years.