With economy weak, low rates needed until at least late 2013, IMF tells Canada

OTTAWA – The International Monetary Fund is telling the Bank of Canada to hold off on monetary tightening until the economy performs better.

The IMF says in a new report on Canada that the economy slowed in 2012 and will underperform again in 2013 with sub-two-per-cent growth.

The Washington-based international financial institution says the best case scenario suggests growth should perk up in late 2013, at which time higher interest rates might be warranted.

But it cautions that as modest as its appraisal is of Canadian economic prospects, all the risks are still tilted toward a worse — not better — result.

It says if the worst does happen, there is still some space for monetary easing to occur — that is for the Bank of Canada to lower interest rates even further.

Similarly, while the IMF says Canadian governments are taking the correct actions in seeking to rein in deficits, they should also be prepared to reverse course to new spending stimulus if an adverse shock were to occur.

Barring any unforeseen circumstances, the IMF says Canada’s economy should advance by just under two per cent in 2013 and at about 2.25 per cent in 2014.

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