While Bank of Canada governor Mark Carney is expected to raise interest rates Wednesday, experts are divided on whether a subsequent rate freeze or further hikes are best for economic recovery.
Carney is expected to raise the bank's target overnight interest rate to 1.00 per cent, up from the current 0.75 per cent.
BNN's Frances Horodelski said Tuesday 11 of 15 economists the network surveyed expect the rate hike, despite weaker-than-expected economic growth. Statistics Canada data released last week said Canada's gross domestic product rose two per cent in the second quarter, short of the bank's prediction of three per cent and sharply down from the 5.8 per cent jump in the previous quarter.
July's jobs number saw unemployment rise slightly to eight per cent, and summer real estate numbers showed a significant cooling in the housing market.
Hiking interest rates is a sign Canada no longer needs rates virtually at zero as economic recovery continues. However, some experts blame the recent weak economic data on rising rates, as higher borrowing costs dampen activity.
"If they put the brakes on by raising rates, that could push us further into the double-dip scenario," John Curran, a market analyst at Forex Canada, told CTV News.
TD Economics predicted last week that should the bank hike its target rate Wednesday, "this is likely to be the last for a while, as economic growth is falling short of the central bank's expectations."
Avery Shenfeld at CIBC World Markets said it would be a good idea for the bank to reconsider future rate hikes.
"We're not sure what the Canadian economy is going to do," Shenfeld told CTV News. "There's uncertainty about the U.S., and the benefits of low interest rates are something we'd want to keep for a while longer."
In contrast, the C.D. Howe Institute's Monetary Policy Council said in a news release last week the bank should hike rates to 1.50 per cent in March 2011 and to 2.25 per cent next September.
Four members of the council called for interest rates to hit 3.00 per cent by this time next year.
"Members who favoured more rapid increases in the overnight rate and higher targets in 12 months' time tended to emphasize Canada's position among countries less damaged by the crisis," the release said, "where the financial system and monetary transmission mechanisms have continued to operate, and where returning policy rates to levels consistent with longer-term stability in inflation is more appropriate."
With a report from CTV's Richard Madan
