26 april 2010
Mark Carney, the governor, is warning markets not to be so sure about the rumors that Canada’s central bank will raise its key interest rates in a few weeks.
On Tuesday, the Canadian dollar shot up more than 1.5 cents to above parity with the U.S. currency. It happened right after the Bank of Canada said it was dropping its promise about not raising rates before July.
But Carney said there’s still certain risk in the global economy.
“There is nothing we can be sure about from this day forward,” – Carney said to a question on interest rates.
Most economists interpreted Tuesday’s statement as a sign for the future higher rates in June.
“The Bank of Canada has limited the possibility to raise interest rates in the next several months,” said chief economist with IHS Global Insight, Brian Bethune.
“Though we can see a few moves to raise the overnight rate by a quarter of a point in the June-October period, the possibility to raise rates will be very limited”. Moreover, it would further boost an already strong dollar.
The Bank said it’s planning for the dollar to hover around parity for the next three years. It’s considered to be a major impediment to strong growth. The deal is that it will make exports less competitive in global markets.
The report says Canada’s economy expanded by 5.8% in the just past quarter. It is the largest number since 1999, but growth will probably slow to 3.8% in the April-June period, and to 3.5% in the rest of the year.
Economic growth will average 3.1% in 2011 and 1.9% in 2012. It’s about half what it will be in the USA and lower than both Europe and Japan.
“There is good news as well – our economy has returned to growth,” said Carney. He also noted that more Canadians will find jobs and those who have had their hours reduced are more likely to get them back.
But Carney still warned that the longer-term prospect for the Canadian economy is modest, unless the corporate sector starts active investing concerning new machinery and equipment.
Canada is also about to face the problem of an aging workforce. It’s even stronger than in the United States.
“Everything is in the hands of the private sector,” Carney said. “If we want to grow faster, we have to work smarter, invest better and build new markets”.