A narrow majority of economists think the Bank of Canada should raise short-term interest rates in its policy decision next Tuesday, according to a survey by the C.D. Howe Institute.

The business research group polled nine economists and found they split on sectoral lines.

The four bank economists surveyed — Don Drummond of TD, Warren Jestin at Scotiabank, RBC’s Craig Wright and BMO’s Tim O’Neill — all said the central bank’s overnight rate should remain at 2% for at least another month.

Among the academics, three favoured a quarter-point increase and two — John Chant at Simon Fraser University and Nicholas Rowe of Carleton — urged a half-point upward jolt.

The majority of the nine economists “felt that most indicators of growth and inflation were moving in directions suggestive of a higher overnight rate,” the institute said.

“Evidence cited by this group included a good near-term outlook for Canadian demand and output, tighter labour markets and high capacity utilization, rapid money growth and a steep yield curve, as well as a buoyant world economy and the possibility that higher oil prices would affect inflation expectations.”

On the other hand, the stand-pat minority “focused on the likely persistence of a modest disinflationary output gap and possible adverse impacts of higher energy prices on demand.”

News release
http://www.cdhowe.org/english/monetary_policy_council/mpc_pressrelease_june_3_2004.html