Bank of Canada could announce overnight interest rate increase Tuesday

Canada’s top bank could up rate as February inflation passes 2% threshold

The Bank of Canada is scheduled to make an announcement concerning the key overnight interest rate on Tuesday, where it could announce an increase in the rate to curve inflation.

The top bank initially outlined a plan that said it would keep the interest rate the same at 0.25-percent until after the second quarter of 2010. The bank initially set that rate in April 2009, and is the lowest overnight lending rate Canadian banks have ever seen.

Economists and analysts expect the top bank to leave the rate unchanged, but it is possible the bank could opt to increase it as inflation has been higher than expected according to recent numbers from the consumer price index (CPI), which measures inflation.

 The Bank of Canada would like to keep inflation below 2-percent annually, but the most recent numbers from the CPI say inflation was 2.1-percent on an annual basis as at February 2010. The last time core inflation was over 2-percent was December 2008 which was 2.4-percent (annualized rate).

February marks the first time in recent memory of the CPI passing 2-percent.

The Bank of Canada might choose to wait longer to get a better idea of actual inflation, or might choose to act now as February inflation marginally passed the 2-percent threshold the Bank of Canada has set in its monetary policy.

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Peggy holds a Bachelor Arts degree with honors in Economics from York University in Toronto, Canada. She is a Certified Management Accountant (CMA). She has also passed Level I of the Chartered Financial Analyst (CFA) Program. She is also a realtor. Write to [email protected]
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