OTTAWA – The Organization for Economic Co-operation and Development forecasts that the Bank of Canada will begin hiking its key interest rate in May 2015 — months ahead of what economists have been predicting.
In its latest Economic Outlook, the Paris-based group says that the central bank will eventually need to raise the currently low one per cent rate to “counter inflationary pressures,” with the rate to rise steadily afterwards.
“Monetary policy has been highly accommodative for some time,” says the 236-page report.
“Given the uncertainty surrounding the amount of economic slack, the Bank of Canada should maintain its current policy stance for the time being. But it will have to start to withdraw stimulus as remaining slack is progressively taken up.”
Most economists have been predicting that the Bank of Canada won’t be making a move on interest rates until at least late 2015. The bank has maintained its trend-setting rate at one per cent for more than four years.
The OECD also projects that Canada’s economy will grow by 2.6 per cent next year, and 2.4 per cent in 2016, largely driven by export demand from the U.S. economy.