Canada think-tank urges rate hike, but views mixed

Thu Jul 10, 2008 4:14pm EDT
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TORONTO (Reuters) - Canada's central bank ought to nudge its benchmark interest rate target higher next week to curb inflation, an panel of economists and academics said Thursday, but the recommendation was far from unanimous.

A nine-member council of the C.D. Howe Institute, an economic think tank, recommended that the Bank of Canada raise its overnight interest rate target to 3.25 percent when it makes its rate announcement on July 15.

But four members of the institute's monetary policy council urged the bank to keep the target at 3.00 percent, while four recommended a 25-basis-point rate hike.

One member of the council, which is composed of economists at universities and in the private sector, went so far as to recommend the bank raise rates by half a percentage point to 3.50 percent.

"Notwithstanding the division in opinion regarding the Bank of Canada's July 15 decision, the main theme of the group's discussion was concern about rising inflation and rising inflation expectations," the institute said in a statement.

Persistently high oil prices, higher consumer prices and evidence of higher inflation expectations in the central bank's recent Business Outlook Survey, as well as increases in wages that are well above inflation "all featured prominently in the discussion," the institute said.

(Reporting by Lynne Olver; Editing by Frank McGurty)

<p>Bank of Canada Governor Mark Carney leaves his office for a news conference upon the release of the Monetary Policy Report in Ottawa April 24, 2008. REUTERS/Chris Wattie</p>