22 June 2010
“Yes, this inflation rate is quite harmless, but the bank’s overnight rate, which is 0.5%, now, is below the inflation rate. It happens really seldom,” – said Douglas Porter, deputy chief economist with BMO Capital Markets.
“There’s no need now, but some time later the trend will be to get those interest rates at least back to inflation level (if not even higher)”.
We wish we knew how fast and how high. Porter thinks the central bank will stop for a moment after another quarter-point hike to 0.75% next month. In the same time the TD Bank said it believes Carney will raise the rate to 1.5% by year’s end.
Krishen Rangasamy (CIBC) said May’s low prices are just another sign of the economic slack still present in Canada – even despite two consecutive quarters of 4.9% and 6.1% growth.
The Bank of Canada thinks growth is moderating and the economy won’t be normalized until the middle of next year.
The only major inflation case will come in the next few months: Ontario and British Columbia will move to a harmonized sales tax (HST). But because it’s just a one-time adjustment, it won’t change the bank’s mind.