The C.D. Howe Institute’s Monetary Policy Council (MPC) today recommended that the Bank of Canada raise its target for the key overnight interest rate to 3.25% at its next announcement on July 15.

The MPC is a panel sponsored by the C.D. Howe Institute to provide an independent assessment of the monetary stance most appropriate for the Bank of Canada as it seeks to achieve its 2% inflation target. William Robson, the Institute’s president and CEO, chairs the Council.

Four of the nine members attending the meeting recommended keeping the target rate at 3% and five recommended raising the rate — with four of those five urging a target of 3.25%, and one urging a target of 3.5%.

The main theme of the group’s discussion was concern about rising inflation and rising inflation expectations. Several members argued that the Bank of Canada should act aggressively to prevent expectations of higher inflation becoming more pronounced and affecting price and wage setting.

Members favouring a less aggressive response by the Bank of Canada tended to emphasize that domestic demand growth is faltering, that credit and financial conditions are less robust now than was anticipated in the spring, and that the pressure of higher energy and food prices on the year-over-year CPI measure will be temporary.