Bank of Canada sees lower growth:

The Bank of Canada has held interest rates at 4.25% again this month, sighting slower US economic as the main cause for concern.

The Bank has reduced the forecast for Canadian GDP (Gross Domestic Product) growth to 2.5% down from 2.9% previously. The Bank is also expecting the core inflation rate to increase over the short term to over 2%, the target rate, and for the core inflation rate to fall back below 2% by mid 2007.

The Bank did not indicate an imminent move to lower interest rates but has reduced their forecast of economic potential in an effort to balance their view of current capacity and the potential capacity later this year and into 2007.

The main concern sighted by the bank over the past few months has been that the Canadian economy was operating at maximum capacity which could lead to an increase in inflation pressure if not contained. That concern appears to be diminishing as the economy in Ontario and Quebec starts to show signs of weakness due to slower demand from the US.

Investors should be looking at long bonds as an opportunity to capture income and capital gains as interest rates fall due to slower economic growth.

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