Carney: don't take rate hike for granted

Wed Jun 16, 2010 5:02pm EDT
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By Ka Yan Ng

CHARLOTTETOWN, Prince Edward Island (Reuters) - Bank of Canada Governor Mark Carney cautioned investors on Wednesday not to take another interest rate hike for granted, saying volatile global conditions mean no particular path for monetary policy is preordained.

The central bank raised its key rate by a quarter point on June 1 to 0.5 percent, becoming the first in the Group of Seven wealthy countries to do so. Markets are pricing in a second hike when the bank makes its next rate announcement on July 20.

"The bank must balance the competing influences on Canadian activity and inflation of momentum in domestic demand and the increasingly uneven global recovery," Carney said in a speech in the East Coast city of Charlottetown.

"In light of the scale and volatility of these conflicting forces, it should be evident that no particular path for monetary policy is preordained."

Carney said the bank will need to be agile and take a subtle approach to monetary policy.

Yields on near-term overnight index swaps, which trade based on expectations for the Bank of Canada's key policy rate, showed markets see an 82.28 percent chance the bank will tighten rates again in July. This was down from 83.49 percent just before Carney's speech.

The Canadian dollar firmed to its strongest level since May 14 just after Carney's speech was released, touching C$1.0224 to the U.S. dollar, or 97.81 U.S. cents. It then pared gains and closed little changed on the day at C$1.0254 to the U.S. dollar, or 97.52 U.S. cents.

"I don't know if he gave us anything that could cement a view one way or the other," said Steve Butler, director of foreign exchange trading at Scotia Capital in Toronto. "I do think we will see another rate hike in July."   Continued...

<p>Bank of Canada Governor Mark Carney speaks at the International Organization of Securities Commissions (IOSCO) conference in Montreal, Quebec, June 10, 2010. REUTERS/Christinne Muschi</p>