Canada is less positive on the world economy than at its last meeting as it continues to hold rates. “The global economic recovery is proceeding broadly in line with the Bank’s projection,” the statement said. Last month, that same recovery had been proceeding “at a somewhat faster pace than the Bank had anticipated”.

It’s not all gloomy, though. Canada’s recovery is “proceeding slightly faster than expected” this month. Still, expect interest rates to remain on hold for some time yet: It remains the case that “any further reduction in monetary policy stimulus would need to be carefully considered.”

Two former rate-raisers are now holding their interest rates, meaning all of the G7 countries are now on hold.

Australia is holding its cash rate at 4.75 per cent, confirming a slow and steady approach to normalisation, following a rapid set of increases from its low of 3 per cent in late 2009. Is the RBA anticipating worsening terms of trade with China? That’s what the FT’s Lex suggested today, calling the Australians “smart” to prepare for the change ahead.

Canada, which cut rates lower and started raising later, is sticking at 1 per cent for its overnight rate and 1.25 per cent for its bank rate (graphed). The Bank cited “increased” risks, saying that weaker exports were dragging down growth. Read more

Canada’s central bank is the latest to ask whether central banks should expand their remit beyond inflation targeting. “If we look only at interest rates, inflation and output, we may miss bubbles and other elements of systemic risk as they build,” Canada’s deputy central bank governor said on Tuesday.

Tiff Macklem said the Bank needed to develop models that include elements of banking and capital markets. “When the financial system is not working normally,” he said, “we cannot rely on the short-cut from interest rates to output and inflation.” The WSJ recently reported the Fed was also developing a more comprehensive model, the Quantitative Surveillance Mechanism (QSM)Read more

Consumer prices rose 1.7 per cent in Canada in the 12 months to August, close to the Bank’s 2 per cent target but a 0.1pp fall from July. Core prices (excluding energy) rose to a healthy 1.6 per cent. Many had expected CPI to rise.

The fall in inflation, though slight, would support the idea of a rate pause. The Bank of Canada raised rates on September 8, despite issuing a pretty gloomy outlook on the economy. This rate rise – which came after the end of the inflation period – will likely dampen inflation further in the coming months.

The Bank of Canada has raised the target for its overnight rate 25bp to 1 per cent, and its bank rate to 1.25 per cent, in spite of a rather bearish outlook:

Economic activity in Canada was slightly softer in the second quarter than the Bank had expected, although consumption and investment have evolved largely as anticipated.  Going forward, consumption growth is expected to remain solid and business investment to rise strongly. Both are being supported by accommodative credit conditions, which have eased in recent weeks mainly owing to sharp declines in global bond yields. Read more

Canada was the first G7 country to start raising rates, and has enjoyed consistent growth for nine months, bar a static April. Latest data show slight growth in May of 0.1 per cent.

However, data show non-farm payrolls fell in May by 0.2 per cent, or 25,000 people. To add to the mixed picture, the central bank reduced growth forecasts 10 days ago, even as it raised rates, and three days later, inflation fell to just 1 per cent. It seems Ben Bernanke’s oft-quoted description of unusual uncertainty, would apply equally well north of the border.

Canadian consumer price inflation has once again touched one of its target boundaries (2 per cent +/- 1 per cent). Consumer prices rose 1 per cent in the 12 months to June, following a 1.4 per cent increase in May.

Energy prices explain most of the drop. Energy prices rose 1.3 per cent between June 2009 and June 2010, having increased 6.2 per cent in the 12 months ending in May. Excluding energy, the CPI advanced 0.9 per cent in June, compared to 1 per cent in May. Read more

G20 nations must implement policies agreed at the latest summit, otherwise “large imbalances may re-emerge, with the attendant risk of disorderly adjustment.”

This from the Bank of Canada’s latest Monetary Policy Report, which finds Canadian growth “proceeding largely as anticipated” and risks to Canada’s economy roughly balanced. Read more

As expected, the Bank of Canada has just raised its overnight lending rate to 0.75 per cent, its bank rate to 1 per cent and its deposit rate to 0.5 per cent. Growth forecasts were reduced, however, and the bank now expects the economy to return to full capacity at the end of 2011, two quarters later than anticipated in April:

“The Bank expects the economic recovery in Canada to be more gradual than it had projected in its April MPR, with growth of 3.5 per cent in 2010, 2.9 per cent in 2011, and 2.2 per cent in 2012. This revision reflects a slightly weaker profile for global economic growth and more modest consumption growth in Canada. The Bank anticipates that business investment and net exports will make a relatively larger contribution to growth.” Read more

Canada’s is the third central bank in a week to cite increased downside risks to the economy. “The overall level of risks to Canadian financial stability has increased” in the past six months said the Bank of Canada’s financial stability review. Read more

“Fortune favours the bold,” the Bank of Canada governor said today, exhorting Canadian businesses to invest and engage with the new ‘multi-polar’ world, and promising to deliver price stability in return.

Perhaps it is this upbeat, confident tone that has convinced investors of further planned rate rises. For convinced they are, if swap rates are anything to go by. Canada’s six- and twelve- month overnight index swap rates have risen to their highest levels since 2008 this week, reports Business WeekRead more

By Bernard Simon in Toronto

Mark Carney has not faced a decision whether to raise interest rates since he took the reins at the Bank of Canada in February 2008. But he will on Tuesday when the bank issues its regular monetary-policy reviewRead more

Simone Baribeau

It’s easier to ask for the benefit of the doubt than to give it.

In response to a question about the Greeks’ low opinion of the IMF, Youssef Boutros-Ghali, chairman of the International Monetary and Financial Committee, called on critics to “give the IMF the benefit of the doubt,” arguing that it is a changed institution.

So is the IMF giving the benefit of the doubt to those whose financial systems held up in the crisis but who are now pushing back against calls for reform? Doesn’t look like it.

Dominique Strauss-Kahn, IMF managing director, in an apparent swipe at the Canadas of the world, said that resisting co-ordinated reforms was “short-sighted”. Countries whose financial systems came close to collapse, would likely have, in the pre-crisis days, felt that they too needed no stronger regulation. If banks in those countries failed, Mr Strauss-Kahn argued, others could be similarly overly optimistic about the strength of their system. Read more

Alan Beattie

A communique that more or less acknowledged disagreement over the great bank taxes debate and a Canadian finance minister, Jim Flaherty, thinking that the debate was swinging Canada’s (anti-bank levy, pro-contingent capital) way. I think one of two things could happen at this point:

1. The US and Europeans who support the bank tax will keep pushing it at G20 level, perhaps soft-pedalling until after the Canadian-hosted G7/G20 summit in June and then resuming the campaign in the second half of the year.

2. As Secretary Geithner suggested tonight, the US might just forge ahead anyway and hope that the rest of the world follows behind once they see what a great idea it is. My notes (not precise quote) say: “We are going to move in the US and I suspect you will find when other countries see what we do, they are going to take similar measures”.

Not entirely sure that 2. is a sustainable option, since other countries might well think it is worth taking the risk of funding a bank bailout down the line to steal business from American and European banks now. Then again, Canadian banks aren’t particularly known for buccaneering adventurism in other developed country markets (some are quite big in emerging markets), so perhaps they are an exception that can be tolerated without too much risk of being undercut. Japan, on the other hand, another opponent of bank taxes, could be a different matter. Read more

Alan Beattie

By Alan Beattie and Tom Braithwaite in Washington

The proposal for a levy on banks’ balance sheets and profits was high on the agenda of the G20 grouping of nations after recommendations in a feasibility report by the International Monetary Fund, released earlier this week. Read more

Simone Baribeau

It seems Canadians were boosting sales near the border in the New York and Minneapolis Federal Reserve districts, according to the Federal Reserve’s Beige book, a periodic anecdotal assessment of regional economies.

No surprise – the loonie is at par with the dollar – but just one vivid example of the benefits of the falling greenback.

Simone Baribeau

If all goes well in the post-recovery world, the Americans will be saving and the Chinese will be buying, according to Paul Jenkins, Senior Deputy Governor of the Bank of Canada.

In a speech today, Mr Jenkins spelled out Canada’s view of the world’s economic future. He predicts industrial economies have a potential growth rate of between 2 and 2.5 per cent and emerging-market economies have a rate of between 5 and 8 per cent. Emerging markets’ growth will so far outstrip developing countries growth, he says, that by 2020 emerging-market economies will likely account for over 55 per cent of global output, compared with 45 per cent today.

And emerging-markets won’t just be producing more, they’ll be consuming more too. Read more

Simone Baribeau

Mark Carney, Governor of the Bank of Canada, today spoke on Canada’s response to the financial crisis. In a question and answer period after the speech, Mr Carney said (via Reuters):

Our view is that the first line of defense of financial stability is regulation and we would underscore the experience with Canada, Australia, other major inflation targeters has been that you can have your cake and eat it too — you can have price stability, you can have financial stability if you get the regulatory side right.

As the governor of the central bank in the only country in the G7 that avoided bailing out its banks, Mr Carney has good reason to tout his country’s success. But what if the crisis has yet to pass? Read more

Simone Baribeau

Action Economics said in a research note that it expected the Bank of Canada to begin increasing its main interest rate in July as the labour market continued to recover.

The general uptrend in hiring since last August will leave an upbeat outlook for Canada’s job market and broader economy that underpins expectations for BoC tightening to start in July.

We expect the BoC to hike rates 25 bps in July. The March announcement began to build the case for rate hikes in the second half of this year as the Bank is projected to move rates from currently extraordinary accommodative levels to merely accommodative levels. At the same time, the prominent role of monetary policy in the recovery and continued downside risks to growth and inflation back the maintenance of an 0.25% floor through Q2 of 2010 and a measured approach to second half tightening.

Action Economics predictions on Canadian tightening: Read more

The central bank of Canada has decided to hold the overnight rate target at 0.25 per cent, and has reiterated its commitment to keeping it there till the end of Q2.

Growth has been slightly higher than expected: “the economy grew at an annual rate of 5 per cent in the fourth quarter of 2009, spurred by vigorous domestic spending and further recovery in exports,” said the Bank. Read more