Bank of Canada officials announced maintaining the overnight rate at 0.25% on Tuesday. This step was expected by markets, however, the Bank finally removed the conditional commitment to keep the rate so low for the future.
The commitment was introduced exactly one year ago and was supposed to stimulate Canadian economy, which was in recession. Since positive economic results keep coming in the recent months and the need for monetary stimulus is fading away, the main condition to keep the extreme rates disappeared.
The economic recovery continues in a more rapid pace all around the world, but especially on emerging markets. Similarly, Canadian economy does well, better than predicted by BoC in the January Monetary Policy Report. Actual outcome is 2% below potential and the Banks expects our economy to grow 3.7% in 2010, 3.1% in 2011 and 1.9% 2012, also thanks to very strong housing activity.
Markets expect 25 basis points or even 50 basis points rate hike in June or July. This depends partly on the inflation rate, which now seems to be attacking the desired 2% level.