Canada’s central bank leaves rate unchanged, but warns higher rates are coming soon

Canada’s central bank says higher rates are coming

TORONTO — Canada’s central bank held its key interest rate at a record low 0.25 percent on Tuesday, but said the need is passing for record-low rates.

The Bank of Canada said it is withdrawing its conditional commitment to keep the rate steady until July. The bank said the need for such extraordinary policy is now passing and it is appropriate to begin to lessen the degree of monetary stimulus.

That sets the stage for a rate hike on June 1 when the central bank next meets.

“There’s a very high probability that they could raise rates on June 1. I would put the odds of them doing it on June 1 at 75 percent,” Toronto-Dominion Bank economist Craig Alexander said. “It is the most likely scenario.”

Canada could become the first Group of Seven country to raise rates since the financial crisis.

The central bank said that the economy is growing somewhat more rapidly than it expected. The bank now projects the economy will grow 3.7 per cent this year, well above the 2.9 percent expansion it had forecast in January.

The Canadian dollar moved back above parity with the U.S. dollar after the Bank of Canada signaled it will raise rates soon. The Canadian dollar jumped 1.50 US cents to 100.04 US cents.

Royal Bank Chief Economist Craig Wright expects Canada to raise rates before the U.S. does. He said the central bank is setting the markets up for an eventual move toward normalizing interest rates.

Canada’s economy, a resource-rich economy dependent on oil and other commodity prices, has emerged from the global downturn faster than the U.S. Canada has not experienced the failure of any major financial institution, and there has been no crippling mortgage meltdown or banking crisis in Canada, where there is greater oversight of mortgages.

“Canada looks great any way you look at it,” Wright said. “Canada is going to be a G-7 leader this year.”