FXstreet.com (Barcelona) - The Bank of Canada has announced today its decision to cut its overnight rate target by 25 basis points to 4.25%, according to the Bank's rate statement.

The bank affoirms that global economy remains robust, while Canadian economy has been gong according the Bank's expectations reflecting in large part underlying strength in domestic demand, nevertheless consumer prices increase has remained below the banks expectations, the Bank expects inflation to be lower than projected over the next several months, although it warns about upside risks to inflation given the strength of domestic demand and weak productivity growth.

In the context of increasing uncertainty due to financial markets volatility, the Bank affirms that the Canadian Dollar has spiked above the parity with US Dollar, but it has retraced to levels close to the 98-cent-U.S.

Other developments sine October, however suggest that the downside risks to the Bank's inflation projection have increased. Financial markets difficulties related to the valuation of structured products and anticipated losses on U.S. sub-prime mortgages have worsened since mid October, according to the Bank, and this tendency s expected to remain, thus bank funding costs have increased globally and in Canada, and credit conditions have tightened further.