The Bank of Canada raised its key interest rate by 0.25 percentage point to 0.75 percent on Tuesday, as expected, but it warned that the domestic and global economic recoveries will be slower than previously forecast, in a signal that any further rate increases may be gradual. After lifting its key rate for the second consecutive month from historical lows, the central bank cut its domestic growth forecast for 2010 to 3.5 percent from 3.7 percent and said Europe's efforts to reduce debt would limit the pace of the global recovery as well. "Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments," the central bank said in statement from Ottawa. The Bank of Canada reduced its growth outlook for next year to 2.9 percent from 3.1 percent but raised its 2012 growth forecast to 2.2 percent from 1.9 percent. The bank now sees the economy returning to full capacity by the end of 2011, two quarters later than it forecast in April. However, inflation is behaving as it expected and likely will remain near the central bank's 2 percent target through the end of 2012, it said.
