Royal Bank: BOC rate to double before year end

Bank of Canada Governor Mark Carney has been warning about being prepared for rising interest rates for over a year now.

As part of its economic outlook for 2011, Royal Bank of Canada projects that the Bank of Canada overnight rate will double from 1% to 2% by year-end.

• Our forecast is that the Bank of Canada will restart its tightening campaign in late May 2011 with the overnight rate forecasted to rise to 2.00% by year-end from 1.00% currently. Interest rates, which have increased in the past three months, are likely to grind higher with short-term interest rates moving up more than longer-term yields. The gradual pace of policy tightening combined with anchored inflation expectations and less fiscal pressures than many other countries will likely result in less upward pressure being exerted on longerterm interest rates resulting in a flatter yield curve and Canadian long-term yields holding below their U.S. counterparts.

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