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Carney Moves Rates

Mark-CarneyBank of Canada chief, Mark Carney, went out of his way to remind Canadians that the promise of low rates is “expressly conditional” on low inflation. And inflation has been stronger than expected.

Short-term interest rates rose after Carney’s statement, with traders placing bets that the Bank of Canada will hike rates in June or July.

Among the rates that moved:

  • Banker’s acceptance yields (which drives variable mortgage rates) hit a new 10-month high.
  • 1-year bond rates, are at a 13-month high.
  • Bloomberg says Canada’s 6-month overnight index swap rate, a gauge of what the overnight rate will average over that period, is at a 1-year high.

Also up is the 5-year bond yield, which influences fixed mortgage rates. It made a new 5-month high yesterday.

Check out how fast the tone has changed in the analyst community:

  • "It increasingly seems as though the Bank of Canada is very tempted toward a June hike." – Eric Lascelles, chief rates strategist at TD Securities. (Edmonton Journal)
  • “I cannot imagine a lower inflation forecast being unveiled come April, but can easily see a higher and sooner forecast.” – Derek Holt, economist at Scotia Capital. Holt thinks Carney may raise rates in June—possibly even April. (BusinessWeek)
  • "We still look for a first move in July, but the odds of something happening earlier are increasing a bit." – Michael Gregory, senior economist at BMO Capital Markets. (Ottawa Citizen)

Just a few months ago, some economists were predicting rates wouldn’t rise until Q4 2010 or early 2011. It’s amazing what a string of hawkish economic reports will do to expectations.