The C.D. Howe Institute’s Monetary Policy Council recommends that the Bank of Canada raise its target for the overnight interest rate to 1.25% at its next announcement on October 19.

The Council also recommends raising the target rate to 1.50% at the following announcement on December 7, followed by increases that would take it to 2.00% in April 2011 and 2.50% in October 2011.

The MPC’s formal recommendations for each announcement date represent the median vote of its nine members. The vote for the BoC’s upcoming meeting was split five to four in favour of a 25 basis point increase.

A number of private sector economists are expecting the central to halt its rate hikes amid expectations that the recover is slowing and the U.S. central bank will be ramping up its easing efforts.

The MPC said that those calling for no change in rates next week, “tended to emphasize recent signs that economic growth in Canada and abroad is weak, that Canadian inflation remains below target, and that inflation expectations remain subdued.” It says that while one member in this camp urged an overnight rate of 2.50% in October 2011, the others urged a rate of 2.00%.

However, those favouring an increase next week “tended to emphasize that the BoC should continue reducing its monetary stimulus to the economy, with a view to achieving a level of the overnight rate consistent with steady growth at 2% inflation once the disinflationary output gap in Canada has closed around the beginning of 2012.”

The MPC said that members in this camp urged an overnight rate target in a range from 2.50% to 3.25% by October 2011.