Bank of Canada should raise rates in late 2013-IMF

Wed Dec 19, 2012 9:59am EST
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* IMF says BoC should resume modest tightening in late 2013

* Projects growth of under 2 pct in 2013, 2.25 pct in 2014

* Says U.S. fiscal cliff, European crisis biggest threats

* Warns on household debt, says tighter policies may be needed

By Claire Sibonney

TORONTO, Dec 19 (Reuters) - Canada's economy should finally ramp up next year following a couple years of sluggish growth, allowing the Bank of Canada to resume raising interest rates by late 2013, the International Monetary Fund said on Wednesday.

In a report that warned about the threat to the Canadian economy from the U.S. "fiscal cliff," a worsening euro zone debt crisis, and high levels of household debt, the multinational agency said real economic growth slowed this year, and it expects it to pick up to just below 2 percent in 2013 and 2.25 percent in 2014.

Next year, the IMF said it expects growth at a pace slightly above potential from the second half of the year, following more certainty in the United States, Canada's largest trading partner, through stronger exports and business investment.

The IMF approved of the Bank of Canada's current accommodative stance - its key interest rate sits at a below-inflation 1 percent - and said the next gradual monetary tightening should start in late 2013, when growth begins to pick up again.   Continued...