Bank of Canada could signal higher interest rates: analysts
After leaving its key interest rate unchanged for the last year, the Bank of Canada could be about to signal that higher rates are on the way, some analysts are forecasting.
The central bank will release its next interest rate policy announcement at 9 a.m. ET Tuesday.
While no one is expecting a rate hike on Tuesday, some rate watchers say the central bank and its governor, David Dodge, could lay the groundwork forthe overnight lending rate to jump as early as the following meeting on July 10.
The key overnight rate has been stuck at 4.25 per cent since May 2006. Any change in this interest rate triggers an immediate change in rates charged for variable mortgages and many demand loans and lines of credit.
TD Economics, for one, thinks the next rate hike could be as early as July, with another hike to follow in September. “The inflation backdrop has become troubling enough, in our view, to fully justify the bank finally moving off the sidelines,”said TD Securities chief economist Marc Lvesque in a commentary.
BMO Capital Markets agrees that the Bank of Canada will move off the sidelines, but not before the fall. “We judge that that Canadian dollar appreciationand the prospects for continued slow growth will likely keep Dodge & Co. on the sidelines, at least through the summer,” wrote BMO senior economist Michael Gregory.
But he said his firm was “pulling forward our forecast for a first[central bank]rate hike into late 2007 from early 2008.”
RBC Economics also expectsa later 2007 rate hike.
“With the core inflation rate well above the two per cent target and the domestic economy gaining steam, the odds of a significant slowing in price pressures are waning, making a very strong case for a policy interest rate increase later this year,” says RBC senior economist Dawn Desjardins. Markets gird for rate increase
The markets are now fully pricing in at least onerate hike before the end of the year. Mortgage rates have already begun to head upas bond yields have risen in anticipation of higher rates.
The mere prospect of higher interest rates has helped to boost the Canadian dollar to a 30-year high near the 93-cent US level.
The C.D. Howe Instituteasked its nine-member monetary policy council to weigh in on what they think the Bank of Canada should do, as opposed to what they think the bank will do.
Their verdict? The majority thinkthecentral bank should raise its key overnight rate right away from the current 4.25 per cent to 4.50 per cent. “Both headline and core inflation are running ahead of the bank’s target,” the council said in a statement.
The core inflation rate which excludes volatile items such as gasoline and fresh fruit and vegetables surged to a four-year high of 2.5 per cent in April.
No Responses to “Bank of Canada could signal higher interest rates: analysts”
Responses are currently closed, but you can trackback from your own site.
