Bank of Canada gives notice on rate hikes, no date

Thu Apr 22, 2010 2:51pm EDT
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By Janet Guttsman and Ka Yan Ng

OTTAWA (Reuters) - The Bank of Canada laid the groundwork on Thursday to raise interest rates from current record lows, saying it was time to start withdrawing some of the stimulus that helped pull Canada out of recession.

Reinforcing a message it delivered earlier this week, the central bank said it was no longer promising to keep its key rate at 0.25 percent until the end of this quarter.

It forecast 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 is appropriate to begin to lessen the degree of monetary stimulus," it said in a low-key Monetary Policy Report that paves the way for Canada to become the first big industrialized nation to raise rates since the recession started.

"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," it added.

The report added details to a statement the bank made on Tuesday in which it left rates unchanged but made clear that higher rates were coming.

Before that statement few had forecast the bank would raise rates at its next rate-setting date on June 1. But a Reuters poll conducted on Tuesday showed 11 of Canada's 12 primary dealers now expect a June rate hike of 25 basis points.

Yields on overnight index swaps, which trade based on expectations for the Bank of Canada's key policy rate, edged lower after Thursday's report, showing the market saw rate hikes in 2010 as a touch less likely than it did before the report.   Continued...