The BoC left rates unchanged today for the 2nd meeting in a row.

The Bank said, “Three major developments are affecting the Canadian economy: the protracted weakness in the U.S. economy; ongoing turbulence in global financial markets; and sharp increases in many commodity prices.”

They said, “inflation is projected to rise temporarily above 4 per cent, peaking in the first quarter of 2009.” 

In the U.S. inflation is already 4.2%.  That may not sound like a lot, but it is–especially when leveraged against a $14 trillion U.S./Canadian economy.  (U.S. inflation stats… / Canadian Inflation Stats…)

The BoC says, “inflation is then projected to converge to the core rate of inflation at the 2 per cent target in the second half of 2009.”

5-year bond yields reacted to the news by falling to 3.30% this morning–their lowest level in over five weeks.  (That’s naturally good for fixed mortgage rates–which hopefully might come down slightly if nothing changes in the near future.)

The next BoC interest rate meeting is September 3.