From ‘OECD urges Bank of Canada to raise rates’, the G&M, 25 May 2011 -
“The Bank of Canada should raise borrowing costs within the next few months to show consumers and businesses that it has a grip on inflation, the Organization for Economic Co-operation says in a new assessment of Canada’s economy.”
…at 1 per cent, the Bank of Canada’s benchmark lending target – the overnight rate for loans between private banks – is “highly stimulative,” the OECD says in its biannual economic outlook for Canada and 33 other member countries.
“The OECD considers a neutral benchmark rate for Canada to be between 4 per cent and 4.5 per cent, a highly academic target that nonetheless demonstrates how aggressive central bank Governor Mark Carney has been in fighting the financial crisis.”
“The Bank of Canada should therefore resume the normalization of policy rates soon in order to pre-empt a broadening of inflationary pressure.”
“But in financial markets, the sentiment is much different.
The odds that the Bank of Canada will increase interest rates by September last week sank below 50 per cent for the first time since March, Bloomberg News reported, citing an analysis of trading of overnight index swaps, which are financial assets whose value is linked tightly to expectations of future interest rates.”