Huffpost Business

Canada RAISES Interest Rates -- Will The U.S. Follow Suit?

Posted: Updated:

TORONTO — Canada on Tuesday became the first Group of Seven nation to raise interest rates since the global financial crisis, but said any further hikes would depend on global economic conditions.

The Bank of Canada increased its key interest rate by a quarter point to .50 percent from a record-low rate of .25 percent.

The bank said thus far the impact of Europe's sovereign debt crisis in Canada has largely been limited to a modest fall in commodity prices.

It said the decision to raise rates still leaves considerable monetary stimulus in place.

Economists widely expected the central bank to raise rates after the country's economy grew 6.1 percent in the first three months of this year, emerging from the global downturn faster than the U.S.

Canada withstood the global economic crisis better than most developed countries. Canada has not experienced the failure of any major financial institution, and there has been no crippling mortgage meltdown or banking crisis due to greater regulation.

"While Canada joined with other countries in taking interest rates down to virtually zero the sense of crisis was never as great here," said Avery Shenfeld, senior economist at CIBC World Markets.

Shenfeld pointed out that the central bank didn't include the usual statement about further rate hikes being required.

"They've left themselves an out to stop after one trivial move if financial markets and commodity markets continue to tell them that the global economy is going in the other direction," Shenfeld said.

Canada's dollar fell 0.64 to US95.19 cents after the announcement. The central bank said economic conditions around the world are uneven and there's the possibility of renewed weakness in Europe.

Royal Bank Chief Economist Craig Wright noted that although Canada is the first of the G-7 countries to raise rates it is a very modest move. The G-7 includes the United States, the United Kingdom, France, Germany, Italy and Japan.

Wright said the bank's statement shows that further rate hikes are not assured.

"It's probably well warranted given the uncertainties out there," he said.

Mark Carney, the head of Canada's central bank, is a former Goldman Sachs executive who took the central bank's top post on Feb. 1, 2008.

Around the Web

Canada raises interest rates

Australia Holds Rates at 4.5%; Canada is First G-7 Country to Hike

The Rate Increase Cycle Begins