The Bank of Canada announced it has decided to maintain the key interest rate at 4.25 per cent Tuesday, citing concerns over the risk of inflation.
The central bank last changed the interest rate last May, when it bumped it up a quarter of a percentage point.
In a report released today, the Bank of Canada determined economic growth to be in line with projected expectations they outlined in the January Monetary Policy Report Update, "but inflation has been higher than expected.''
The prices of especially volatile items such as food and gasoline have been above projections. Price increases were running at 2.3 per cent on an annual basis in March, above the central bank's two per cent target.
While there is speculation that the interest rate will be raised soon, the Bank did not commit to such action in its report.
"The upside risk to the Bank's inflation projection is that the recent strength of inflation could be more persistent than projected," it said in the report.
"The Bank continues to judge that the risk to its inflation projection are roughly balanced, although there is now a slight tilt to the upside."
Overall, the Canadian economy has been operating at just above its production capacity in the first quarter of this year, Tuesday's statement said.
Looking forward, it said the economy is projected to grow 2.2 per cent this year and by 2.7 per cent in both 2008 and 2009.
Robust domestic demand continues to be the main driver, while strong growth outside North America is pushing up demand and prices for commodities.
"The Bank now judges that the Canadian economy was operating just above its production capacity in the first quarter of this year," said the report.
Core inflation, which excludes volatile items, is projected to decline to two per cent by the end of 2007, although total inflation will remain above the two per cent target.
Meanwhile, the slowing U.S. economy has been moderating Canadian growth.
With files from The Canadian Press
