Even though the growth in demand has slowed somewhat – largely due to a slowdown in exports to the US – the Bank isn’t in any particular hurry to start lowering interest rates just yet. According to their projection, demand will still be strong enough to be putting upward pressure on inflation for at least the next two quarters.

Today’s announcement: "Although global economic growth is expected to be a little higher
than previously anticipated, a weaker short-term outlook for the U.S.
economy has curbed the near-term prospects for Canadian exports and
growth. As well, given developments in labour productivity growth, the
Bank has reduced its assumption for potential growth to 2.8 per cent
for the 2006-2008 period. As a result of these factors, the Bank has
revised its projection for economic growth in Canada to 2.8 per cent
this year, 2.5 per cent in 2007, and 2.8 per cent in 2008. This growth
profile implies that the small amount of excess demand now in the
economy will be eliminated by the second half of 2007, and that the
economy will then remain roughly in balance through to the end of the
projection period. Consistent with this profile, core inflation is
expected to move slightly above 2 per cent in coming months, and to
return to 2 per cent by the middle of 2007. Lower energy prices have
led to a downward revision to the near-term projection for total CPI
inflation. Total inflation (which includes the temporary impact of the
GST reduction) will likely average about 1 1/2 per cent through to the
second quarter of 2007, before returning to the 2 per cent target and
remaining there through to the end of 2008.

In line with this updated outlook, the current level of the target
for the overnight rate is judged at this time to be consistent with
achieving the inflation target over the medium term."