Bank of Canada holds rate-hike bias, eyes on Poloz

Wed May 29, 2013 12:19pm EDT
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By Louise Egan and Randall Palmer

OTTAWA (Reuters) - The Bank of Canada clung on Wednesday to its year-long message that its next move on interest rates would be a hike, staying the course in the final decision under outgoing Governor Mark Carney and leaving any change in stance to his successor.

As expected, the central bank held the key policy rate at 1 percent, extending a nearly three-year freeze on rates, the longest since the 1950s.

It cited continued slack in the economy, a muted outlook for inflation, and slower debt buildup by Canadian households as justification for keeping rates unchanged for now.

The "considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required," it said.

Governor Carney is stepping down and will begin a five-year term as Bank of England governor on July 1.

Canada's central bank is the only one in the Group of Seven industrialized nations to signal that its next move will be a rate increase, while the U.S. Federal Reserve and other central banks continue to pump stimulus into the global economy through massive bond-buying campaigns after slashing rates to zero.

The forward guidance was identical to that in the bank's last rate decision on April 17, and sets the stage for the bank's next governor, Stephen Poloz, to oversee any policy shift after he takes over on Monday.

Markets are looking to Poloz's testimony to a parliamentary committee on June 6 and his first speech as governor June 19 for clues on his thinking.   Continued...

Bank of Canada Governor Mark Carney reacts during an unveiling ceremony of the new Canadian 5 and 10 dollar bills at the Bank of Canada in Ottawa April 30, 2013. REUTERS/Chris Wattie