Carney signals higher rates on the way

By Jeremy Torobin, Globe and Mail

For the first time in more than a year, Bank of Canada Governor Mark Carney is setting the stage for higher interest rates.

While a rate hike does not appear imminent, Mr. Carney is sending a clear message that borrowing costs will rise as soon the economy can handle it. Most observers now believe the next rate hike will be in September, a year after the last increase, and the central bank is likely to use its next rate decision on July 19 to signal its intentions.

When rates do rise, though, the central bank’s language and economic realities suggest increases will be cautious and gradual.

“To the extent that the expansion continues and the current material excess supply in the economy is gradually absorbed, some of the considerable monetary policy stimulus currently in place will eventually be withdrawn,” the central bank said Tuesday in Ottawa, as it left its benchmark rate at 1 per cent for a sixth time.

“Such reduction would need to be carefully considered.”

Even though the economy has seen two successive quarters of impressive growth and increasing food and energy costs are causing inflation to exceed the target of the central bank, Mr. Carney is navigating a disconcerting plethora of foreign as well as domestic risks.

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