Bank of Canada hikes policy interest rate by 50 basis points

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OTTAWA, Dec. 7 (Xinhua) -- The Bank of Canada on Wednesday increased its benchmark interest rate by 50 basis points to 4.25 percent.

The bank's governing council will be considering whether the policy interest rate needs to rise further to bring supply and demand back into balance and return inflation to target, the central bank said in a press release.

"We are resolute in our commitment to achieving the 2 percent inflation target and restoring price stability for Canadians," the bank said.

Canada's CPI inflation remained at 6.9 percent in October, with many of the goods and services Canadians regularly buy showing large price increases, the bank said, adding that measures of core inflation remain around 5 percent and that three-month rates of change in core inflation have come down, an early indicator that price pressures may be losing momentum.

However, inflation is still too high and short-term inflation expectations remain elevated. The longer that consumers and businesses expect inflation to be above the target, the greater the risk that elevated inflation becomes entrenched, the bank said.

According to the bank, Canada's GDP growth in the third quarter was stronger than expected, and the economy continued to operate in excess demand. Labor market remains tight, with unemployment near historic lows.

While commodity exports have been strong, there is growing evidence that tighter monetary policy is restraining domestic demand: consumption moderated in the third quarter, and housing market activity continues to decline, the bank said.

The bank projected that the country's economic growth will essentially stall through the end of this year and the first half of next year.

Quantitative tightening continues and is complementing increases in the policy interest rate, the Bank of Canada said.