Carney Warns Higher Interest Rates on the Way

Author: Bank of Canada

Bank of Canada Governor Mark Carney has put Canadians on notice that today’s low borrowing costs are likely to increase by midsummer, if not sooner.

Carney acknowledged on Wednesday that inflation and economic growth are rebounding faster than the Bank of Canada predicted, and it has left the door open for a rise in the central bank’s trend setting overnight rate more quickly than Canadians have expected.

Almost a year ago, Carney decided to combat the recession by taking the unusual step of promising to keep the bank’s overnight rate are the record low of 0.25% until the end of June 2010.

He has reminded us on several occasions that he does have the option to raise rates sooner, and this point was brought on Wednesday, as he noted that the bank will re-examine its stance if inflation threatened to get out of hand, which is a main concern.

Rising Bank of Canada rates cause commercial banks to suit, increasing borrowing costs for consumers, homebuyers and business. This slows down economic expansion and cools inflation, however it is not without risk. By raising interest rates too soon, we could slow down Canada’s rebound from the recession.

Both economic growth and price increases have exceeded expectations in recent months. Statistics Canada said last week that the core inflation rate rose 2.1% in February.

Carney has not made anything definite, however he noted that Canadians will have to wait till the bank’s next interest rate setting on April 20th got a decision. For reading inflation dangers, the bank will publish its analysis in its quarterly report April 22nd.