This just in:

We have all heard about the Bank of Canada’s position on raising the overnight rate - no change until mid 2010.

Well, I was reading an economist’s take on this last week and he actually feels that the central bank will postpone rate hikes until mid 2011. He supports this position by citing a strong Canadian dollar, core inflation remaining within the target rate or below and an economy that is gradually pulling out of a recessionary period.

Yesterday I read an article in the Financial Post that quoted the venerable C.D. Howe Institute. The Howe Institute, a conservative-leaning think tank, believes that significant increases to the key overnight lending rate are required - ‘the central bank should act with zeal to get ahead of the inflation curve’. The Howe suggests that The Bank of Canada needs to aggressively raise the benchmark lending rate by 50 basis points beginning in the summer. The increases to the overnight rate should continue to increase with every scheduled announcement until mid 2011. Wow, that is aggressive! That would take the Prime lending rate from 2.25% today to somewhere in the 5.25-5.75% range in mid 2011.

There you have it, two dramatically different takes on how the Bank of Canada should contend with its monetary policy for the next twelve to sixteen months. I will reserve judgement until I read Mr. Carney’s thoughts next week.

Key Date: March 2nd, 2010 Interest Rate Announcement.

Scott H