Economists React to Canada's Rate Hike

Jun. 1.10 | About: CurrencyShares Canadian (FXC)

By David Berman

The Bank of Canada raised its key lending rate by a quarter of a percentage point on Tuesday morning, making it the first central bank within the G8 to raise rates since the start of the financial crisis.

But is the bank now embarking upon a campaign to raise rates steadily higher in the months to come? Here are a few thoughts from economists.

“While the consensus and the markets were generally expecting the move, almost as important was the tone of the press release: overall, the Statement was unambiguously on the dovish side of expectations, with the Bank almost bending over backward to indicate that this is not necessarily the start of a relentless campaign to crank rates higher.” -- Douglas Porter, deputy chief economist, BMO Nesbitt Burns

“The Bank of Canada thinks it knows what the Canadian economy needs – higher interest rates – but isn’t so arrogant to assume that financial and commodity markets have it wrong in their recent concerns about global growth. Hence today’s odd split decision, with Governor Carney delivering the anticipated quarter-point hike, but in a rare move, admitting that even he isn’t so sure about what comes next.”-- Avery Shenfeld, chief economist, CIBC World Markets

“While the Bank took the “elevator down” when cleaving rates, ongoing uncertainties and an easing pace of growth point to a very careful pace of tightening. The Bank may not hike at each meeting and might “pause” on increases if near-term financial conditions warrant. The emphasis on global conditions in today’s communiqué is no accident and, after the rocky last couple of years, policy-makers are keenly aware that Canada is not an island.”-- Grant Bishop, economist, TD Securities