It appears that the possibility of increased rates is getting closer to becoming a reality – but not likely until mid-summer – if then.
Once again, opinions on this vary widely, but the ‘noise levels’ are increasing.
Bank of Canada boss calls country’s productivity record ‘abysmal’
Last Updated: Wednesday, March 24, 2010 | 3:00 PM ET Comments36Recommend16
CBC News
Bank of Canada governor Mark Carney appeared to send signals Wednesday intended to prepare Canadians for an increase in interest rates, spurred by concerns about inflation.
But there was nothing that suggested the bank will move earlier than the widely expected date of midsummer.
‘Core inflation has been slightly firmer than projected,’ Bank of Canada governor Mark Carney says. (Sean Kilpatrick/Canadian Press)
Inflation has been rising more than the bank expected, Carney acknowledged in a speech to a conference in Ottawa put on by the Canadian Association for Business Economics.
“Core inflation has been slightly firmer than projected,” he said.
The core inflation rate excludes more volatile prices for food and energy and is closely watched by the Bank of Canada in making decisions about whether to increase rates.
The bank lowered its overnight target interest rate last April to a record low 0.25 per cent and said it would more than likely keep it there until July of this year.
At the same time, it predicted the core rate would fall short of its target annual rate of two per cent until the second half of next year.
Core-rate increase higher than predicted
But Statistics Canada reported on Friday that the annualized core rate in February was 2.1 per cent, up from two per cent in January, and ahead of most economists’ predictions of 1.7 per cent.
On March 2, the bank reconfirmed its plans to hold off on any rate increase until the summer, but today Carney warned that this is conditional on the outlook for inflation. The bank will update that outlook in its next monetary policy report, to be released April 22.
Sal Guatieri, senior economist with BMO Capital Markets, told CBC News there’s nothing in Carney’s speech that suggests the bank is “itching” to raise interest rates.
“We think the bank is still committed to keeping interest rates on hold at least until the middle of this year but then will begin to gradually raise interest rates starting in July,” Guatieri said.
Countering the case for raising rates are concerns about high debt levels affecting Greece, Spain and Portugal, a U.S. housing market that continues to “wobble” and the prospect of the Canadian dollar reaching parity with the U.S. dollar this summer, Guatieri said.
Takes aim at productivity
Carney also took aim at Canadian businesses for failing to invest enough in productivity growth, the measure of the increase in value of goods and services produced by each working Canadian.
Describing Canada’s record as “abysmal,” he predicted that if the trend isn’t reversed, falling productivity could cost every Canadian $30,000 in income over the next decade.
He criticized business for not investing more in new technology and training, and the country for not putting more into in training workers to improve their skills with computers and communications technology.
Carney said Canadians are well educated but not in the areas where they could be most competitive internationally.
He also called for the country to foster more competition in the telecommunications, electricity, and retail industries.
Read more: http://www.cbc.ca/money/story/2010/03/24/carney-rates.html#ixzz0j7gean3r
