IMF Tells Canada to Delay Higher Rates Until Late 2013

The Bank of Canada should refrain from raising interest rates until the end of next year to help fuel growth, and the country should use regulation to stem a further build up of household debt, the International Monetary Fund said.

“The beginning of the monetary tightening cycle should be delayed until growth strengthens again,” the Washington-based fund said in a report on the Canadian economy, adding the central bank has room for further monetary easing if growth fades. “The current monetary policy stance is appropriately accommodative given the negative output gap.”

Canada’s central bank has kept its key lending rate at 1 percent for more than two years, the longest pause since the 1950s.

The IMF said global economic uncertainty, including concern that more than $600 billion in tax increases and spending cuts will begin next month in the U.S. if Congress doesn’t act, is containing growth in Canada. The country’s expansion is forecast to be “just below 2 percent” in 2013.

The impact on Canada from fiscal tightening in the U.S. will be about three-quarters of the effect in the U.S., the IMF said, adding the current pace of fiscal consolidation in Canada is “appropriate.” The IMF said the federal government is on track to balance its budget by 2015 and has room for a new temporary fiscal stimulus package if needed.

To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net

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

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