Foreign Banks Beginning to Raise Rates

• Following Australia's example from earlier this month, Norway follows and raises it's overnight lending rate by 0.25%. Mark Carney of the Bank of Canada has 'commited' to maintaining Canada's overnight lending rate at 0.25%, although many are skeptical that this will indeed be raised before the previously set date of end of second quarter, 2010. Read below for more information on what other countries are currently experiencing~

Leah

Norway becomes 1st in Europe to raise rates

28/10/2009 10:53:41 AM

CBC News
Norway's central bank has decided to raise its key interest rate by a quarter percentage point to 1.5 per cent, making the oil-rich country the first European economy to boost rates since the height of the global financial crisis.

Norges Bank announced the hike Wednesday, citing "signs of new growth" in the economy.

On Tuesday, the central bank of India elected to hold rates steady, but gave a strong indication it plans to hike rates in the near future due to runaway inflation - expected to reach 6.5 per cent by March, well ahead of the three per cent target.

In August, the Israeli central bank boosted its benchmark lending rate.

And earlier this month, Australia became the first major world economy to raise its lending rate. Australia is one of the few developed economies in the world to have avoided a recession.

Since October 2008, Norway's central bank has cut rates by a total of 4.5 percentage points due to the financial and economic crunch, but rates have held steady since June.

The Nordic country of 4.8 million, which is not a member of the European Union, escaped the financial crisis largely unscathed thanks to its vast oil revenues, which it invests in a sovereign wealth fund worth $420 billion US.

Still, Norway's economy is predicted to shrink one per cent this year.

In its latest policy decision last week, the Bank of Canada held its benchmark lending rate steady at 0.25 per cent. It reiterated its "conditional commitment" to keep rates there until late 2010 at least.

With files from The Associated Press

Bank of Canada Remains Unchanged

Bank of Canada maintains overnight rate target at 1/4 per cent and reiterates conditional commitment to hold current policy rate until the end of the second quarter of 2010

OTTAWA - The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1/4 per cent. The Bank Rate is unchanged at 1/2 per cent and the deposit rate is 1/4 per cent.

Recent indicators point to the start of a global recovery from a deep, synchronous recession. Global economic and financial developments have been somewhat more favourable than expected at the time of the July Monetary Policy Report (MPR), although significant fragilities remain.

A recovery in economic activity is also under way in Canada. This resumption of growth is supported by monetary and fiscal stimulus, increased household wealth, improving financial conditions, higher commodity prices, and stronger business and consumer confidence. However, heightened volatility and persistent strength in the Canadian dollar are working to slow growth and subdue inflation pressures. The current strength in the dollar is expected, over time, to more than fully offset the favourable developments since July.

Given all of these factors, the Bank now projects that, relative to the July MPR, the composition of aggregate demand will shift further towards final domestic demand and away from net exports. Growth is expected to be slightly higher in the second half of this year than previously projected but to average slightly lower over the balance of the projection period. The Canadian economy is projected to grow by 3.0 per cent in 2010 and 3.3 per cent in 2011, after contracting by 2.4 per cent this year. This is a somewhat more modest recovery in Canada than the average of previous economic cycles.

The Bank now expects that the output gap will be closed in the third quarter of 2011, one quarter later than it had projected in July. Correspondingly, inflation is also expected to return to the 2 per cent target in the third quarter of 2011, one quarter later than in July's projection.

While the underlying macroeconomic risks to the projection are roughly balanced, the Bank judges that, as a consequence of operating at the effective lower bound, the overall risks to its inflation projection are tilted slightly to the downside.