Meanwhile, Stay Liquid

To the extent that the C.D. Howe Monetary Policy Council has any sway or any predictive abilities, it looks as if interest rates in Canada are due to rise by quite a bit over the next year or so. 

Toronto, April 15 — The C.D. Howe Institute’s Monetary Policy Council (MPC) today recommended that the Bank of Canada hold its target for the overnight interest rate (the very short-term money-market rate the Bank targets for monetary policy purposes) at 0.25 percent at its next announcement on April 20, 2010. The Council further recommended keeping the target at 0.25 percent at the Bank’s next announcement in June. The MPC’s recommendation for October 2010 was for a target of 1.25 percent and, looking one year ahead, for a target of 2.50 percent in April 2011...

The MPC’s formal recommendation is its median vote. Nine of the ten members attending the meeting recommended a target of 0.25 percent next week. For the announcement in June, however, the group was divided: while six recommended that the Bank hold the target at 0.25 percent, consistent with its conditional commitment to keep the overnight rate at its effective minimum through mid-year, two wanted a target of 0.50 percent in June, and two wanted a target of 0.75. Calls for the October setting ranged from a low of 0.75 percent to a high of 1.75 percent, and calls for April 2011 ranged between 1.50 and 3.25 percent.

Nick Rowe, of Worthwhile Canadian Initiative, is a member of the C.D. Howe MPC. According to the press release from which the above material is copied, Nick favoured quite a bit lower-than-median interest rates. It will be interesting to follow his blogging to learn his explanations.

Meanwhile, if interest rates are likely to rise that much over the next year, I see no reason to lock up funds in longer term investments unless the yield curve is pretty steep.