The C.D. Howe Institute’s Monetary Policy Council recommends that the Bank of Canada raise its target for the overnight interest rate at the bank’s rate setting meeting next week.

On Thrusday, the MPC called on the BoC to hike the oversight rate 25 basis points to 1.25% at its next announcement on January 18. It was a close call, with five of the nine members on the panel recommending a hike, and the other four saying it should stand pat. The recommendation represents a median call by the panel.

“On balance, the call for an immediate upward move reflected a view among several participants that recent economic news had weakened the argument for a longer pause before raising the overnight rate to more normal levels,” the MPC said.

Looking ahead to the March 1 meeting, the MPC recommends holding the target rate at 1.25%, followed by increases that would take it to 2.0% in July and 2.5% in January 2012. The range of recommendations among MPC members tended to increase as the time horizon extends, it notes.

“Recent indicators of demand and production in the United States and overseas mitigated concerns about near-term dips in activity or deflation. The group noted continued concern over sovereign debt in Europe, but on balance felt that the importance of these risks as factors in Canadian policymaking had diminished since late 2010,” the MPC said.

IE