Early indications are that the Canadian dollar could decline ahead of tomorrow’s Bank of Canada interest rate announcement. Despite recording a 3.9 percent increase in Gross Domestic Product for the first three months of the year, most observers expect Governor Mark Carney to announce that the Bank of Canada will not raise rates beyond the current 1 percent. This could have investors selling the dollar for currencies offering higher yields.
While few expect a rate increase, close attention will be paid to Carney’s statement in the hope that the Governor will provide a signal as to when he expects rates to increase. Most analysts feel that October is the earliest we can expect the Bank to introduce a rate hike as the short-term forecast is for the Canadian economy to slow slightly from the first quarter’s robust pace.
It was not that long ago that market participants were convinced that Canada was about to enter a period of sustained rate increases. Indeed, starting last June the Bank did introduce three successive quarter point rate hikes but the policy was abandoned after the Canadian economy slowed faster than expected.
Despite this, the Organization for Economic Co-operation and Development (OECD) recently urged the Bank of Canada to return to a policy of rate hikes. The OECD believes that Canada’s interest rate is currently too low and as a result, borrowers are taking on debt levels that would otherwise be beyond their means. Should these rates rise significantly later on, the OECD warns that a dramatic rise in the default rate is likely and this could place the Canadian economy at risk.
Early indications are that the Canadian dollar could decline ahead of tomorrow’s Bank of Canada interest rate announcement. Despite recording a 3.9 percent increase in Gross Domestic Product for the first three months of the year, most observers expect Governor Mark Carney to announce that the Bank of Canada will not raise rates beyond the current 1 percent. This could have investors selling the dollar for currencies offering higher yields.
While few expect a rate increase, close attention will be paid to Carney’s statement in the hope that the Governor will provide a signal as to when he expects rates to increase. Most analysts feel that October is the earliest we can expect the Bank to introduce a rate hike as the short-term forecast is for the Canadian economy to slow slightly from the first quarter’s robust pace.
It was not that long ago that market participants were convinced that Canada was about to enter a period of sustained rate increases. Indeed, starting last June the Bank did introduce three successive quarter point rate hikes but the policy was abandoned after the Canadian economy slowed faster than expected.
Despite this, the Organization for Economic Co-operation and Development (OECD) recently urged the Bank of Canada to return to a policy of rate hikes. The OECD believes that Canada’s interest rate is currently too low and as a result, borrowers are taking on debt levels that would otherwise be beyond their means. Should these rates rise significantly later on, the OECD warns that a dramatic rise in the default rate is likely and this could place the Canadian economy at risk.
Canada’s Gross Domestic Product (GDP) expanded by 3.9 percent during the first three months of the year bettering the 3.1 percent recorded in the fourth quarter of last year. This is the fastest rate of growth in the past year but Bank of Canada Governor Mark Carney is still expected to maintain the current one percent interest rate until later in the fall.
“Growth should cool off following the first quarter’s hot pace,” Emanuella Enenajor, at Canadian Imperial Bank of Commerce in Toronto, wrote in a note to clients before the report. “That would put less pressure on the Bank of Canada to hike rates in the near term.”
Bloomberg
Japan’s finance minister urged the Bank of Japan on Friday to align policy with the deeply indebted government’s efforts to fight deflation, maintaining pressure for possible monetary easing or even government bond purchases.
BOJ Governor Masaaki Shirakawa did not rule out any policy options but reiterated the current level of bond buying — a step some policymakers have called for to tame bond yield gains — was appropriate for now.
Prime Minister Yukio Hatoyama echoed his finance chief, Naoto Kan, in calling for BOJ cooperation, telling parliament that the government will work with the central bank to overcome falls in prices. Data showed Japan’s narrowest measure of consumer inflation fell at a record pace in December.
Reuters
