Bank of Canada gives notice on rate hikes, no date

Thu Apr 22, 2010 10:55am EDT
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OTTAWA (Reuters) - The Bank of Canada laid the groundwork for hikes to record low interest rates on Thursday, and said it was time to start withdrawing some of the unprecedented monetary stimulus that helped pull Canada out of recession.

Reinforcing a message first beamed out earlier this week, the Canadian central bank said it was no longer promising to keep its key interest rate on hold at an all-time low of 0.25 percent until the end of this quarter. It gave no date for a rate hike.

In its latest Monetary Policy Report, the bank forecast Canadian growth of 3.7 percent this year, and said core inflation, which strips out one-off factors, was set to stay close to its 2 percent target.

With recent improvements in the economic outlook, it is appropriate to begin to lessen the degree of monetary stimulus it said in comments that pave the way for Canada to become the first member of the Group of Seven rich industrialized countries to start raising rates since the world fell into recession.

The extent and timing of any additional withdrawal of monetary stimulus will depend on the outlook for economic activity and inflation, and will be consistent with achieving the 2 percent inflation target

The bank next sets interest rates on June 1 and then again on July 20. Its forecasts assume an average exchange rate of 99 U.S. cents to one Canadian dollar. (Reporting by Janet Guttsman, editing by Ka Yan Ng)