Highlights
As expected, the Bank of Canada increased its key interest rates by 25 basis points to 3.25 percent. It had rested at 2.5 percent since October 19, 2004 before increasing to 2.75 percent in September and 3 percent in October. The Canadian economy is operating at close to full capacity, and economic data are strong.

In its statement, the Bank said
"Information received since the October Monetary Policy Report (MPR) indicates that the Canadian and global economies have been evolving largely in line with the Bank's expectations. In Canada, despite somewhat stronger than expected output growth in the third quarter, the Bank expects the level of economic activity at the end of 2005 to be about as projected in the MPR. Total CPI inflation, at 2.6 per cent in October, has come down more quickly than expected, primarily reflecting a rapid decline in gasoline prices. Core inflation, at 1.7 per cent in October, is in line with the Bank's projection. Overall, the Bank's outlook for the economy and inflation through 2006 and 2007 is broadly unchanged from October.

"The Bank continues to judge that the risks to the outlook are balanced over the short term, but are tilted to the downside through 2007 and beyond. In line with the outlook, some further reduction in monetary stimulus will be required to maintain a balance between aggregate supply and demand over the next four to six quarters and keep inflation on target. The Bank will continue to monitor international developments particularly closely and to assess the adjustments and underlying trends in the Canadian economy, as well as the balance of risks, as it conducts monetary policy to keep inflation on target over the medium term."