The C.D. Howe Institute’s Monetary Policy Council (MPC) Tuesday recommended that the Bank of Canada hold its target for the overnight interest rate at 0.25% at its next announcement on June 4.

The overnight rate is a very short-term money-market rate that the central bank targets for monetary policy purposes.

The panel provides an independent assessment of the monetary stance most appropriate for the Bank of Canada as it seeks to achieve its 2% inflation target.

“The consensus on the desirable target at the next setting was unanimous, with all seven members attending the meeting advocating a target of 0.25%,” the MPC said.

Looking ahead to the next setting on July 21, all but one member supported maintaining the target at 0.25%.

When asked to look six to 12 months out, however, the group’s views diverged and individual calls were strongly qualified by the possibility of further economic shocks, the MCP noted. Three members called for an unchanged target of 0.25%, three called for a target of 0.75%, and one called for 1.00%.

TD Economics highlights two themes that have emerged since Bank of Canada’s last interest rate announcement.

“First, some economic data has been not as bad as feared. Second, the currency is on a tear,” it says.

“But given the surprisingly transparent commitment in April to keep the overnight rate unchanged at 0.25% until June 2010, we do not think that the outlook has changed sufficiently to sway the Bank from the sidelines, nor does quantitative easing seem likely.”

IE