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The Bank of Canada will need time to evaluate the highly uncertain impact of the strong Canadian dollar and won't raise rates again until the fall of 2005, according to Sal Guatieri, Senior Economist, BMO Financial Group. Guatieri commented after the Bank of Canada chose to keep its target rate for overnight funds at 2.50 per cent.

"Today's statement omitted a couple of references from the October missive relating to the economy operating near full capacity and, more significantly, to the need to reduce the monetary stimulus over time to achieve the inflation target," said Guatieri. "Barring a sharp reversal in the loonie, the omission of these statements strongly hints at a lengthy pause in the tightening cycle.

"We don't expect the Bank of Canada to resume raising rates until the fall of 2005, and only if growth remains close to potential in the first half of the year, as we expect. A further sharp appreciation of the currency, or evidence that its impact is more severe than anticipated, could cause the Bank to unwind some of its earlier rate increases."

A full report on the Bank of Canada's decision from BMO Financial Group's Economics Department is available at www.bmo.com/economic.

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