The central bank’s policy statement Tuesday is at no surprise that they were going to hold down the trend setting interest rate at the record low 0.25% for another date, but it was clear what was next on the agenda.
The bank’s governing council declared that with the economy growing faster this year than anticipated, as well as inflation, there isn’t a need to stay with the conditional commitment of not touching rates until the end of the second quarter, or June 30th.
Banks no longer believes it has a pledge to keep the policy rate at the so called lower bound until July, and it sets the stage for a quarter point or even half point increase on June 1st, which is the next announcement date.
Once the bank acts, short term rates and variable mortgages are likely to increase. Markets have been planning for the central bank to move off emergency rates and in the past few weeks had begun hiking fixed, longer term mortgage rates.
It is now expected that the economy will improve 3.7% this year and 3.1% next year and 1.9% in 2012.
The central bank has noted that the economy will return to full capacity one quarter sooner than was previously expected.