Key Canadian lending rate unchanged

Ottawa, April 18 (IANS) The Bank of Canada is keeping its key interest rate at one percent, the bank has announced although it indicated that interest rates could rise soon.

The central bank has not changed the trendsetting rate steady since September 2010 in an effort to stimulate investment and economic activity, reported Xinhua.

However, the bank suggested Tuesday that higher rates are likely to come soon.

"In light of the reduced slack in the economy and firmer underlying inflation, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate," the bank said.

The statement immediately lifted the Canadian dollar to 101.76 US cents, a jump of 1.73 cents.

The bank said Canada's economy and economies around the world are doing better than it had anticipated, pushing up inflation. The US economy is recovering, and business and consumer confidence are improving faster than expected, it added.

The bank now expects the Canadian economy to grow by 2.4 percent in both 2012 and 2013. Its previous forecast was 2 percent in 2012.

"The degree of economic slack has been somewhat smaller than the Bank had anticipated in January, and the economy is now expected to return to full capacity in the first half of 2013," it said.

In recent months, Bank of Canada Governor Mark Carney has warned Canadians that they are taking on too much household debt, mainly in mortgages and credit cards. He has suggested low interest rates are not likely to last much longer.

Household debt as a proportion of disposable income was close to 151 percent at the end of last year.

The bank now still regarded households' debt burden as the biggest domestic risk in the latest release, as "household spending is expected to remain high relative to GDP", adding the debt burden.

The bank noted that the timing and degree of any withdrawal of the monetary stimulus policy "will be weighed carefully against domestic and global economic developments".