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Canada May Need to Raise Policy Rate by July, OECD Says

The Bank of Canada may need to raise its benchmark lending rate by the second half of next year to avoid inflation, the Organization for Economic Cooperation and Development said.

While growth will remain “moderate” until the middle of 2013, “economic slack is not large,” the OECD said in an economic outlook released today.

The agency projects the world’s 11th largest economy will grow 2.0 percent this year, followed by 1.8 percent next year and 2.4 percent in 2014. “Given the central projection, the Bank should begin to tighten in the latter half of 2013,” the OECD said in its report.

Canadian household debt has surged to a record amid low interest rates, prompting policy makers to warn of risks to the country’s financial system.

The OECD said the tightening of mortgage-insurance rules by the government in June will cool house prices. “If housing- market imbalances worsen, the government should respond with further macro-prudential measures,” the OECD said, referring to regulatory steps rather than monetary action.

To contact the reporter on this story: Andrew Mayeda in Ottawa at amayeda@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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