Bank of Canada Signals G-7’s First Rate Increases

Discussion in 'Economics' started by ASusilovic, Apr 21, 2010.

  1. April 20 (Bloomberg) -- The Bank of Canada signaled it may be first in the Group of Seven to increase borrowing costs, joining other countries such as India and Australia, as economic growth accelerates and stokes inflation.

    In its decision today to leave the lending rate at a record low 0.25 percent, policy makers dropped a phrase about a “conditional commitment” to keep it unchanged until July unless the inflation outlook shifted. The bank said inflation will be “slightly higher” than its 2 percent target over the next year, and increased its 2010 economic growth forecast to 3.7 percent from 2.9 percent.

    The Canadian dollar jumped as much as 1.6 percent as the new language suggested the bank may increase rates as early as its next announcement on June 1. The two-month overnight index swap rate, a measure of the average overnight rate expected by investors during that time, rose to 0.3315 percent, the highest in a year.

    “With recent improvements in the economic outlook, the need for such extraordinary policy is now passing, and it is appropriate to begin to lessen the degree of monetary stimulus,” the central bank, led by Governor Mark Carney, said in a statement today from Ottawa. “The extent and timing will depend on the outlook for economic activity and inflation.”

    The Canadian dollar gained 1.6 percent to C$0.9987 against the U.S. dollar at 10:45 a.m. in Toronto, from C$1.0144 yesterday, which was the weakest level since March 30.

    Long CAD / JPY... :)
  2. The press up here widely believes a rate hike to come out of the June meeting. It is inevitable at this point, just a matter of if it happens in June or a month or two later.