OECD Pressure Canada To Hike Rates

22 May 2012 14:30 - Florence Fullalove

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OECD Pressure Canada To Hike Rates

According to a report by the Organization for Economic Co-operation and Development (OECD) Canada’s economy is gradually recovering and is expected to grow by 2.25% in 2012 and 2.5% in 2013. The report said that private consumption and investment will continue to be the main drivers of growth for the country. But the OECD said that Canada’s central bank should begin hiking interest rates in its latest economic outlook. The research group suggests Canada’s benchmark rate go up by 0.25% in the first of a series of hikes that would see the overnight target rate hit 2.25% by the end of 2013.

The report said, “It is assumed here that the first policy rate increase will be implemented in autumn 2012, which is a few months ahead of current market expectations...However, on this projection, further increases towards the neutral rate will also be needed in 2013 to hit the inflation target.” As the benchmark for bank prime lending rates, the overnight target rate influences how much Canadians pay for everything from lines of credit and mortgages to business loans. Spurred by the long run of low rates, Canadian household debt has risen to approximately 150% of disposable income.

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