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Policy Hub: Macroblog provides concise commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues for a broad audience.

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December 7, 2005

Doves Land At The Bank Of Canada?

From Bloomberg:

Canada's government bonds rose and the Canadian dollar fell from a 13-year high after the Bank of Canada lifted the overnight rate by a quarter-percentage point to 3.25 percent and said inflation is slowing.

Yields on Canada's benchmark two-year government bond dropped from the two and a half-year high reached yesterday as traders trimmed bets on rate increases.

That, I think, makes them the first major central bank to officially un-sound the inflation alarm.  From the Bank's official statement, via Reuters:

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.

Not everyone, however, is convinced that this means a reversal of the basic program.  From the National Post:

While all thoughts of a possible 50-basis-point hike from the Bank of Canada may have been banished, [Craig Wright, chief economist at Royal Bank of Canada] does think the bank may have to raise rates over a longer time period than expected. "When the Fed started their tightening cycle, people were looking at 4.0% or 4.25%; now that we're there, people say there is more to come," Mr. Wright said.