Rising Canada rates almost inevitable

Tue Jul 27, 2010 2:26pm EDT
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By Ka Yan Ng

OTTAWA (Reuters) - The pace of Bank of Canada interest rate moves remains uncertain, but it is "almost inevitable" that rates will rise over time, soon-to-be retired Deputy Governor Pierre Duguay said on Tuesday.

The central bank's Monetary Policy Report last week stated explicitly for the first time that the bank's outlook assumes "a gradual reduction in monetary stimulus consistent with achieving the inflation target." At the same time, the bank also ratcheted down its domestic growth forecasts.

"It sets the general profile," Duguay, 59, told Reuters in an interview ahead of his retirement from the bank on July 29, the week after the bank raised interest rates for the second time in two months.

"But from the high level of monetary stimulus currently in place it's almost inevitable that there would be some upward movement," he said.

He added: "It's important to say that there is always uncertainty. It's not preordained. We're talking in general terms."

Duguay, a deputy governor of the Bank of Canada since January 2000 and part of the group that decides monetary policy, is also responsible for issues related to promoting a stable and efficient financial system.

He said banking capital reforms were "very close' to being ready to present to G20 leaders at their summit in South Korea in November.

Agreements on objectives for higher quality capital are already in place, and different measures of leverage must still be examined to see which are most appropriate, Duguay said.   Continued...