CD Howe monetary council says BoC needs to keeps rates on hold

The council says rates need to hold through early 2014 before raising to 1.25% by July 2014.

TORONTO – The CD Howe Institute’s Monetary Policy Council has recommended that the Bank of Canada keep its target for the overnight interest rate at 1% at its next announcement next week.

The council called on the central bank to keep the target on hold through to early 2014, before raising it to 1.25% by July 2014.

The Bank of Canada’s next rate announcement is set for July 17 when it is also expected to release its latest monetary policy report.

The report will include the central bank’s base-case projection for inflation and growth in the Canadian economy, and its assessment of risks.

The CD Howe council, which includes academics and private-sector economists, was unanimous in calling for the one per cent rate target for next week and through to January 2014.

Five of the 10 members called for the rate to remain at 1% in July 2014, while three called for 1.25%, one for 1.5% and one for a target of 1.75%.

“The group’s unanimity on the desirability of a steady one per cent target until 2014 largely reflected a view that moderate growth in demand will not close the disinflationary output gap in the Canadian economy until well into 2015,” the C.D. Howe Institute said.

The Bank of Canada’s overnight rate target has been set at 1% since September 2010.

©The Canadian Press