Bank of Canada sets stage for rate hike, a G7 first

Tue Apr 20, 2010 2:27pm EDT
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By Louise Egan

OTTAWA (Reuters) - The Bank of Canada signaled on Tuesday it may raise interest rates as soon as June, making it the first G7 central bank willing to end emergency-level lending rates introduced during the crisis as the economy roars back after the recession.

The bank kept its benchmark rate at 0.25 percent, the record low level it has been at for the past year. But after surprisingly high inflation and growth numbers, it abandoned a conditional pledge to hold the rate at that level until the end of June.

"With recent improvements in the economic outlook, the need for such extraordinary policy is now passing, and it is appropriate to begin to lessen the degree of monetary stimulus," it said in a statement.

"The extent and timing will depend on the outlook for economic activity and inflation, and will be consistent with achieving the 2 percent inflation target."

The central bank next sets interest rates on June 1, and then on July 20. It previously said it would hold rates steady until the end of the second quarter, unless inflation strayed off course.

"This is a more hawkish than expected statement," said Doug Porter, deputy chief economist at BMO Capital Markets.

"Quite simply, June is definitely on the table as a possibility for the bank to begin hiking rates."

Most of Canada's primary securities dealers moved up their forecast for a first rate hike to June from July after the bank's statement.   Continued...

<p>Bank of Canada Governor Mark Carney speaks during a news conference upon the release of the Monetary Policy Report in Ottawa October 22, 2009. REUTERS/Chris Wattie (</p>