INTEREST RATES: Central bank’s Carney says inflation stronger than expected

Bank of Canada governor Mark Carney said Wednesday his pledge to keep the bank’s benchmark rate on hold until July is “ expressly conditional” on inflation, which he acknowledged has been “ slightly” stronger than anticipated.

The central bank will update its inflation forecast in late April when it releases its latest monetary policy report, the governor said in a luncheon speech in Ottawa.

Still, Carney’s comments would indicate he stands ready to increase interest rates should the upward trend in inflation persist. And it raises the odds of a rate hike sooner rather than later.

“ It increasingly seems as though the Bank of Canada is very tempted towards a June hike,” said Eric Lascelles, chief economics and rates strategist at TD Securities.

Michael Gregory, senior economist at BMO Capital Markets, said: “ We still look for a first move in July, but the odds of something happening earlier are increasing a bit.”

To date, Carney said inflation has been higher due to “ transitory factors,” most notably the Winter Olympics in Vancouver and a higher-thanexpected level of economic activity. Regardless, he said the bank has an “ unwavering commitment to price stability,” whereby it sets interest rates at a level to reach and maintain two per cent inflation.

His speech Wednesday was much anticipated on Bay Street and financial capitals, given recent robust Canadian data and the implications they might have on the timing of the Bank of Canada’s first rate hike since 2007. Stronger-than-expected inflation in February led some traders to anticipate a rate hike at the central bank’s June 1 meeting, on the belief that emergency-level interest rates are no longer required.

In an effort to pump up economic growth, the central bank has kept the benchmark rate could at 0.25 per cent, or its lowest level possible.

(prepared by Paul Vieira/Vancouver Sun)