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Bank of Canada leaves the Bank Rate unchanged

08:59 29May2007 RTRS- BANK OF CANADA HOLDS OVERNIGHT RATE AT 4.25 PCT; SAYS RATE INCREASE MAY BE REQUIRED IN NEAR TERM

09:00 29May2007 RTRS-BOC SEES BIGGER RISK INFLATION WILL PERSIST ABOVE 2 PCT TARGET; APRIL CPI, CORE ABOVE EXPECTATIONS

09:00 29May2007 RTRS-BOC-ECONOMY LIKELY GREW 3.5 PCT IN Q1, FULL PERCENTAGE POINT HIGHER THAN BANK'S APRIL ESTIMATE

09:00 29May2007 RTRS-BOC-C$ HAS RISEN APPRECIABLY ABOVE RANGE ASSUMED IN BANK'S APRIL PROJECTION

09:00 29May2007 RTRS-BOC-THERE IS SOMEWHAT GREATER EXCESS DEMAND IN THE ECONOMY THAN WAS THOUGHT IN APRIL

09:00 29May2007 RTRS-BOC-U.S. GROWTH HAS BEEN LARGELY AS EXPECTED, CDN COMMODITIES BOOSTED BY STRONG GROWTH ELSEWHERE

09:00 29May2007 RTRS-BOC OMITS REFERENCE TO RISKS BEING BALANCED; SAYS GROWTH, INFLATION HIGHER THAN EXPECTED

09:00 29May2007 RTRS-Bank of Canada holds rates, signals hike to come

OTTAWA, May 29 (Reuters) - The Bank of Canada held its key overnight interest rate unchanged on Tuesday at 4.25 percent, as expected, but said a near-term rate hike may be needed to tame inflation.

"On balance, the bank judges that there is an increased risk that future inflation will persist above the 2 percent inflation target and some increase in the target for the overnight rate may be required in the near term to bring inflation back to target," the central bank said in a statement.

The clear tightening bias was a departure from the bank's stance since last increasing rates in May 2006 and beginning the longest period of rate stability since the early 1970s.

The bank said total inflation and core inflation, which strips out volatile items, had both come in higher than expected in April. It also said first-quarter growth was likely to be 3.5 percent, a full percentage point higher than its estimate in a Monetary Policy Report last month.

The Canadian dollar, which last week hit 29-1/2 year highs versus the U.S. currency, has traded significantly above the range assumed by the bank. Strong growth outside North America has translated into strong demand for Canadian commodities, the bank said in an apparent signal that the dollar's rise was not speculative and would therefore not impede a rate hike.

((Reporting by Louise Egan; Reuters Messaging: louise.egan.reuters.com@reuters.net: tel 613 235-6745))



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