Calgary Alberta Mortgage and Real Estate News

The Canadian dollar declined from a six-week high on speculation an economic slowdown in the U.S. will curb growth in Canada.“We’ve seen the highs in the Canadian dollar,” said Matthew Strauss, senior currency strategist in Toronto at RBC Capital Markets Inc. “The central bank will cut interest rates again in the first quarter. A U.S. slowdown will hit Canada eventually.”

The currency fell 1.3 percent to 99.41 Canadian cents per U.S. dollar at 4:08 p.m. in Toronto. The currency touched 97.57 cents on Dec. 28, the strongest since Nov. 20. One Canadian dollar buys $1.006. The currency rose to an all-time high of 90.58 Canadian cents per U.S. dollar on Nov. 7, and gained 17 percent this year.

Bank of Canada Governor David Dodge said on Dec. 21 that the country faces a greater risk of recession now than it did six months ago, as growth slows around the world and the risk of a “disorderly” adjustment increases.

Canada’s central bank unexpectedly lowered the benchmark borrowing cost a quarter-percentage point to 4.25 percent on Dec. 4 in a bid to bolster growth. The central bank will cut the rate to 4 percent at the next policy meeting on Jan. 22, according to the median forecast in a Bloomberg News survey.

The Canadian currency’s gain this year was its biggest since 2003, as advancing commodity prices boosted the country’s exports and pushed the unemployment rate to three-decade lows. The Canadian dollar had the second-biggest advance among the 16 most-actively traded currencies, trailing only Brazil’s real, which gained 20 percent.

Oil, Gold

Commodities such as crude oil and gold account for half of Canada’s exports. Oil prices rose 57 percent this year to about $96 a barrel, for the biggest annual percentage gain since 2002. Gold rose 31 percent this year, the seventh straight annual gain.

Hedge funds and other large speculators last week trimmed their bets that the Canadian currency will gain against the U.S. dollar by 37 percent, figures from the Washington-based Commodity Futures Trading Commission showed on Dec. 28. The wagers betting on the currency’s gain outnumbered those on the decline by 14,723 as of Dec. 25.

The currency may decline to C$1.06 per U.S. dollar by the end of next year, according to the median forecast in a Bloomberg News survey of 40 analysts.

The yield on Canada’s 4.25 percent two-year government bonds due December 2009 fell 4 basis points, or 0.04 percentage point, today to 3.74 percent. The price rose 7 cents to C$100.93.

Canada’s dollar fell to an almost six-week low after Bank of Canada Governor David Dodge said an interest rate cut is possible because of “risks” to economic growth.Dodge said the growing threats to the global economy and volatility in financial markets may affect the country’s benchmark lending rates. Interest rate futures suggest traders have increased bets that the central bank will cut the borrowing cost from 4.5 percent early next year.

“The central bank has started to take note of the downside risk coming from the trade side,” said David Watt, a senior currency strategist at RBC Capital Markets in Toronto. “The days of easy gains in the Canadian dollar are gone.”

Canada’s dollar weakened 1 percent to 98.19 Canadian cents per U.S. dollar in Toronto at 11:25 a.m. The Canadian dollar reached 98.88 Canadian cents per U.S. dollar on Nov. 16, its weakest since Oct. 9.

Canada’s trade surplus narrowed more than forecast in September to a nine-year low, as the country’s currency soared to parity with the U.S. dollar and hurt exports of machinery and industrial goods, a government report said on Nov. 9.

“It’s quite clear the downside risks to world growth have increased” since policy makers from the Group of Seven nations met in Washington a month ago, Dodge told reporters during a conference call from South Africa. “That clearly poses a risk, which we’re going to have to take into account in setting our own policy.” Dodge is in South Africa for meetings with finance ministers and central bankers from the Group of 20 nations.

Interest-Rate Futures

Bankers’ Acceptance Futures for March fell 13 basis points, or 0.13 percentage point, to 4.29 percent. The futures yielded 4.76 percent on Oct. 10.

The futures have settled at a three-month lending rate averaging 16 basis points above the central bank’s target since Bloomberg started tracking the data.

International investors reduced holdings of Canadian securities for a fifth consecutive month in September, with the decline exceeding economists’ forecasts, government figures showed.

Investors abroad sold a net C$5.2 billion ($5.3 billion) of Canadian securities, Statistics Canada said today in Ottawa. Foreign portfolio investors sold C$2.9 billion of Canadian stocks during the month, and C$2.6 billion of Canadian bonds.

The currency extended its losses after National Bank of Canada, the country’s sixth-largest bank, said it plans to take a C$365 million ($374 million) writedown in the fourth quarter for its investments in Canadian asset-backed commercial paper.

Asset-Backed Securities

National Bank’s action is the largest among five Canadian banks that have said they’ll reduce the value of their asset- backed securities in the quarter. The other lenders, including Royal Bank of Canada and Bank of Montreal, had combined writedowns of C$807 million on commercial paper and securities tied to the U.S. subprime mortgage market.

Citigroup Inc., the largest U.S. bank by assets, was lowered to “sell” by a Goldman Sachs Group Inc. analyst who predicted that the lender’s writedowns of collateralized debt obligations will total $15 billion over the next two quarters.

The yield on the two-year Canadian government bond, more sensitive than longer maturities to interest-rate policy change, fell 18 basis points, the most since May when the bond started trading, to 3.66 percent. The price of the 4.25 percent security maturing in December 2009 rose 34 cents to C$101.15. Bond prices move inversely to yields.

“There has been a lack of liquidity in the market,” said Dean Popplewell, a currency analyst in Toronto at Oanda.com, an online foreign-exchange trading firm. “People are looking at the bigger picture, and taking shelter in the fixed-income market.”

The Canadian dollar slipped
against the U.S. dollar on Wednesday, after comments by Bank of
Canada Governor David Dodge seemed to do away with any thoughts
of higher interest rates any time soon.
Domestic bond prices, with no major Canadian data to
consider, followed U.S. Treasuries lower.
At 9:25 a.m. (1325 GMT), the Canadian dollar was at
C$1.0056 to the U.S. dollar, or 99.44 U.S. cents, down from
C$1.0036 to the U.S. dollar, or 99.64 U.S. cents, at Tuesday’s
close.
In a Vancouver news conference on Tuesday, Dodge said the
Canadian dollar’s surge to parity with the U.S. dollar was not
entirely justified by economic fundamentals, suggesting the
central bank was fretting about the currency’s rise.
The market, which had previously priced in the chance of
higher interest rates in the near to medium term, has had to
reassess outlooks to take into account the impact of the recent
credit crunch and the soaring currency.
“I think (the bank is) going to be on hold certainly next
month and there’s probably a little bit of doubt creeping into
the market’s mind…about rate increases period,” said Shaun
Osborne chief currency strategist at TD Securities.
The Canadian dollar last week reached parity with the
greenback for the first time in 31 years, reflecting steady
Canadian interest rates — the Bank of Canada left its key rate
steady at 4.50 percent in September — and a U.S. Federal
Reserve rate cut of 50 basis points to 4.75 percent.
A raft of weak U.S. data after the U.S. subprime mortgage
induced credit crunch has increased expectations of further
interest rate cuts in the U.S.
Meanwhile, oil prices spurted back above $80 a barrel ahead
of U.S. data expected to show a further decline in crude
stocks. Part of the commodity-linked Canadian dollar’s rise in
recent weeks has been on the back of soaring oil prices.
“Around these ($80 a barrel) levels, it would suggest that
the Canadian dollar is probably going to trade around this
parity level, but we’d probably need higher levels again to see
the Canadian dollar really take off,” said Osborne.
BONDS SLIP
Canadian bond prices followed U.S. Treasuries lower,
retracing some of the gains made over the past week.
Weaker-than-expected U.S. durable goods figures did little
to help bond prices, as the data is often volatile, said Chris
Holmes, Canadian fixed income strategist at J.P. Morgan
Canada.
With no Canadian data due until the end of the week,
domestic bond prices will likely continue to follow the lead of
U.S. treasuries and North American equity markets.
Friday’s figures are for July gross domestic product, and
August industrial producer prices and raw materials.
The overnight Canadian dollar Libor rate <LIBOR01> was
set at 4.7667 percent, still above the Bank of Canada’s 4.5
percent target for the overnight rate.
And Tuesday’s CORRA rate <CORRA=>, the weighted average of
the day’s rates on Canadian repurchases rose to 4.4840 percent
from 4.4709 percent on Monday. The Bank of Canada publishes the
rate at around 9 a.m. daily.
The two-year bond fell 7 Canadian cents to C$100.15 to
yield 4.174 percent, while the 10-year bond dropped 27 Canadian
cents to C$96.72 to yield 4.420 percent.
The yield spread between the two-year and 10-year bond
moved to 24.8 basis points from 24.0 at the previous close.
The 30-year bond lost 35 Canadian cents to C$108.36 to
yield 4.487 percent. In the United States, the 30-year treasury
yielded 4.920 percent.
The three-month when-issued T-bill yielded 4.03 percent,
unchanged from the previous close.

The Bank of Canada’s 4.5-per-cent overnight lending rate “is appropriate” but the bank must “look at the causes” of the rising loonie over the next three and a half weeks as it drafts its Oct. 16 interest-rate announcement, governor David Dodge said in speech Tuesday.”We need to assess the effect of movements in the exchange rate on the balance of aggregate demand and supply in the Canadian economy,” Dodge said, in what observers took as a hint that an immediate interest rate hike is unlikely as the bank examines the ongoing fall-out from this summer’s market turbulence.

“Overall, it looks like the bank is solidly on hold until they have a chance to assess the impact of the tightening of credit conditions on the real economy, and the impact of the most recent appreciation of the Canadian dollar,” Jacquie Douglas, an economics strategist with TD Securities, wrote in a note following the speech.

In his speech, Dodge noted “significant upside and downside” inflationary risks, observing that stronger-than-expected household demand could drive up inflation while spillover from the sputtering U.S. housing market could have the opposite effect.

Assessing which of those risks is more serious is what “we will be concentrating on between now and our next interest rate announcement,” Dodge told reporters after his speech to the Vancouver Board of Trade.

Of particular concern are rising housing prices, he said, which make up about five per cent of the country’s consumer price index.

“When, on average, new housing is rising at eight per cent, that really puts an upward bias into the CPI and it’s clearly something that in hitting our target we are very concerned about,” he said.

But he offered little hope to Canadian manufacturers, who have pressed the bank to cut interest rates as a way of dropping the value of the loonie, whose flight to parity has slashed returns in the auto and forestry sectors.

The rise in the price of resource products relative to manufactured goods “sends a signal that real resource labour and capital really have to be diverted from now lower value-added activities in manufacturing to higher value-added activity in the resource sector or in a number of service sectors,” Dodge said. “The lesson of history is that not to adjust is just not an option. And we have to find ways to get on with it.”

Still, while noting that a rising currency has little direct impact on inflation, “to the extent the rise in the Canadian dollar affects our exports in a negative direction and our imports in a positive direction, obviously that effect really does flow-through into the balance of demand and supply of Canadian goods and services. And that precisely is what we will have to take into account,” Dodge said.

His comments suggest that “a tighter Canadian monetary policy is not likely and, if anything, pointed to a higher probability of an easing if economic conditions get much worse,” Scotia Capital economist Karen Cordes wrote in a note.

For a generation, Americans have had a reason to feel superior to Canadians: Our dollar was worth more than theirs. Ours was a full dollar; theirs was discounted. And thus it was a shock last week when the Canadian loonie stole across the line of superiority and registered a value of $1.0008.

There were several reasons for this. Oil is the obvious one. Canada is endowed with much oil and gas, and the rise in its value tends to lift the currency. Americans have a large appetite for that oil and gas, perhaps more than is good for them. Another reason for the muscular loonie has been the financial probity of Canada’s conservative government. Unlike our conservative government, Canada’s has really and honestly balanced its budget.

This year, Canada is planning to run a 2-percent budget surplus. Canada’s Treasury has announced a long-term plan to pay off the central government’s debt, allowing cuts in the rates of personal income tax.

Imagine that: Pay off the debt, then cut the tax.

Our conservative government doesn’t think that way. It cuts taxes first, increases domestic spending and starts a war. Our conservative government put the whole smorgasbord on the credit card and argued that there would be no financial indigestion.

When indigestion arrived in the form of a subprime-mortgage crisis, Fed Chairman Ben Bernanke slashed the interbank lending rate. Probably by that time, it had to be done but it was not what a prudent, fiscally sound country should have had to do.

With the interest-rate cut, the dollar fell again, because it is less rewarding to park one’s funds at a lower rate of pay.

Now the greenback swims in the same pond as the loonie, which as recently as January 2002 was worth just 62 cents on the dollar.

And it’s not just Canada: The dollar has fallen this year against the euro, the pound, the yuan and the yen, and also against such proud players as the Polish zloty, the Russian ruble, the Philippine peso, the Mexican peso and the Brazilian real.

We shall have to be polite to the Canadians.

The Bank of Canada is universally expected to hold its interest rates steady at 4.5% tomorrow.

Although the unemployment rate is at a 33-year-low of 6.0%, wages are rising at a 3.7% annual clip, the economy expanded 3.4% in the second quarter and core inflation has been above its 2% target for an entire year, the sludge dripping from North American debt markets is expected to persuade the bank to stay its hand for now.

It will take time to see whether this sludge will contaminate broader lending, mingle with the U.S. housing slump and cause the United States and Canadian economies to slow. Canada also has some sludge of its own to absorb from the asset-backed commercial paper blow-up here.

It is ironic that as the bank holds rates in response to the slump in U.S. housing, it may further stoke a Canadian housing market still on a tear and vulnerable to risks of its own — like the rising labour and materials costs the bank was previously trying to restrain.

While U.S. building and sales have cratered and prices have dipped 3.2% on the year, Canadian resales rose nearly 10% in July to a new record and average prices jumped 12.6% to a record $311,495.

Toronto high-rise sales, meanwhile, are in their second year of 24% increases year-to-date. The luxury hotel-condo — usually commanding the top floors of some architectural jewel and bearing a marquee name like Ritz or Four Seasons — is the latest boom’s must-have.

“It is now common to see 2,000-to 2,500-square-foot condos selling for $2-million or more with property taxes and condo fees to match,” Sherry Cooper, chief economist at BMO Capital Markets, said in a recent note. “Per square foot, condo prices are now higher than single-family home prices of similar quality and location.”

At the Four Seasons hotel-condo in Yorkville for example, a 2,500-square foot condo sells for more than $4-million; a 3,900-square-foot penthouse has a $7.4-million price tag.

Although the prices may not be quite so lofty, they are racing across the country, too, with Saskatoon joining Calgary as the latest hot spot.

Analysts are at pains to point out how the Canadian market is in much better health than the United States.

“The current subprime default rate in Canada is less than 3% compared with 13% and growing for the United States,” Warren Lovely, economist at CIBC World Markets said in recent note. And there isn’t much subprime debt in Canada anyway. It accounted for barely 5% of mortgage originations during 2005-06, well below the 20%-plus share in the United States, Mr. Lovely said.

As well, Canadians have taken out fewer mortgages with teaser or adjustable rates and they have traditionally relied less on home lines of credit to fuel consumption.

Builders and lenders in Toronto, burnt by the 1990 real estate bust, are smarter too.

“There’s a healthy amount of discipline that has been inserted into the Canadian system that was a direct result of the problems of ‘89, ‘90, ‘91,” said George Carras, vice-president at RealNet Canada Inc. Typically a project is 60% to 70% sold before a shovel breaks ground. Deposits are also quite significant and required at various milestones over the course of construction.

At the Four Seasons for example, the buyer must put down a $50,000 deposit, followed by additional deposits equal to 25% down at the end of the first year after signing — with still more than two years to go before occupancy, Ms. Cooper notes.

“There is an incredible rigour around the interim financing, which is typically done after a minimum pre-sales target has been met and enough due diligence is in place — there is enough money to get their loan back on the completed building,” Mr. Carras said.

Yet trouble can come rumbling out of nowhere, as the Canadian ABCP market storm has shown.

Instead of buyers walking away from deposits as prices slid in the United States, Canadian developers might run into trouble grappling with runaway costs, especially if borrowing costs become stickier north of the boarder.

Canada is at, or very near full employment in the construction industry, and competition for labour has become fierce, Mr. Lovely said. Material costs have also soared.

Under a supply-side crunch, a developer might go bust before he can bring his project to completion, leaving buyers hanging.

Mr. Carras agrees the biggest risk for the Toronto market now appears to be execution risk, especially with some 60 of the 160 or so developers building new homes in the Greater Toronto Area having operated for five years or less.

“The things to watch are in the execution risk–being able to deliver the units that are sold, within budget to people that will be closing when they are supposed to be closing,” Mr. Carras said. “That’s the risk profile of this marketplace because there are a number of people in this space that have not been in this space before.”

So far though, the market appears to be functioning smoothly and the condos are flying off the shelves.

But as the U.S. market shows, sentiment can sometimes turn on a dime — all the more reason for the Bank of Canada to hope this subprime mess sorts itself out and it can get back to raising rates.

The governor of the Bank of Canada suggested yesterday the Canadian dollar’s recent surge may have gone beyond levels supported by economic fundamentals — but repeated that interest rates may still have to increase to restrain stronger-than-expected growth and inflation.

The delicate balancing act from David Dodge fell short of verbal intervention to talk the currency down, analysts said.

Instead, the bank was acknowledging the currency’s US10¢ surge to the US94¢ territory over the past couple of months will factor prominently in its interest rate deliberations, putting a question mark over hikes beyond an already expected increase in July.

“I don’t think [the currency’s surge] is going to change the fact that they seem to be gearing up still toward a move in July,” said Michael Gregory, senior economist at BMO Capital Markets. “What this did do was throw a little bit of water on the belief we’ve got multiple hikes coming down the pike here, because the currency is now back on their radar screen.”

Mr. Dodge said the loonie has moved well beyond the US86.5¢-to-US89.5¢ range expected in its April update and it has been significantly stronger than other major currencies against the U.S. dollar.

“Much of this appreciation can be linked to such factors as the strength of demand for Canadian goods and services, continuing firm prices for commodities and a positive outlook for Canadian economic growth,” Mr. Dodge said in a speech in St. John’s. “But over this period, it does seem the overall response of the Canadian dollar to these factors appears to have been a bit stronger than historical experience would have suggested.”

The comment indicates the bank thinks the currency’s latest jump may not be driven entirely by the kind of economic fundamentals that would also drive growth — such as strong commodity prices — so it could act as restraint on the economy.

“I don’t think he’s trying to talk the currency down,” said David Wolf, Canadian economist at Merrill Lynch. “I think what he’s trying to suggest is the bank does view the rise in the currency as having done some of its tightening work for it. It shouldn’t diminish anyone’s expectations of higher rates ahead but it also reinforces the fact that any particular quantity of tightening or duration of tightening certainly shouldn’t be a certainty.”

At the same time, Mr. Dodge also pointed out inflation has been stronger than anticipated, service prices continue to run well above 2%, prices for goods have been higher than expected and there is an increased risk future inflation will persist above its 2% target.

In the bank’s May statement, it said “some increase in the target for the overnight rate” may be needed to bring inflation back into line. It was how Mr. Dodge concluded his speech yesterday in St. John’s — and pointed that out at a later press conference.

Marc Levesque, chief economics strategist for TD Securities, said he is maintaining his forecast for a rate hike in July and September but added Mr. Dodge’s comments did “inject a little bit of uncertainty” into the outlook for monetary policy.

Mr. Dodge downplayed the possibility the bank would intervene in foreign exchange markets to restrain the currency like the Reserve Bank of New Zealand did this week, noting markets had not been “disorderly” — a key requirement for Canadian central bank intervention.

“We haven’t had disorderly markets, which is one of the key issues,” Mr. Dodge said. “Nor have we seen an issue where somehow currency alignment has got way, way out of line.”

The cost of borrowing money to buy a home rose another notch late last week as bond yields jumped amid fears that growing inflation pressures are becoming too strong to ignore.

Canada’s largest bank, the Royal announced its residential mortgage rates would increase between 0.10 and 0.15 percentage points, bringing its five-year closed rate to 7.29 per cent.

“The global economy has a lot more momentum than most people, including central bankers believed,” said Doug Porter, deputy chief economist with BMO Nesbitt Burns.

“It’s beginning to put upward pressure on inflation in a variety of areas.”

Interest rates across North America have become the focal point of money watchers lately, with speculation increasing almost daily that the U.S. Federal Reserve may raise rather than lower rates, even if that doesn’t happen immediately.

Earlier this month, the Bank of Canada warned bluntly it could raise interest rates, with expectations the overnight rate of 4.25 per cent could rise a quarter point next month.

Much of Canada’s mortgage market is tied to prime rates, which are based on the central bank’s overnight rate.

On May 29, Canada’s major banks raised their residential mortgage rates by nearly one third of a point in expectation of a rate hike from the Bank of Canada.

The latest rate hikes come against a backdrop of a Canadian housing market that continues to sizzle.

Average resale prices recently climbed above the $300,000 mark for the first time, while sales values and listings all set fresh records this spring driven by a buying frenzy in the west.

The Canadian dollar dipped
against the U.S. dollar on Monday but was still within striking
distance of its recent high as the market looked ahead to a
mid-week speech by Bank of Canada Governor David Dodge.
 Domestic bond prices, which have been under pressure in
recent months, were stuck lower.
 At 8:40 a.m. (1215 GMT) the Canadian unit was at C$1.0615
to the U.S. dollar, or 94.21 U.S. cents, down from C$1.0602 to
the U.S. dollar, or 94.32 U.S. cents, at Friday close.
 The Canadian dollar has eased slightly since touching a
30-year high early last week, but each drop in the currency has
been met with another wave of buying.
 ”Every indication tells us there should be a correction
lower,” said David Watt, senior currency analyst at RBC Capital
Markets. “But any time it seems the Canadian dollar starts to
sell off it seems to get bumped on and people push it back to
levels it has been trading at for the past several days.”
 The latest example of that resilience came on Friday as the
Canadian dollar bowed down to a weak Canadian jobs report, only
to find buying interest at lower levels which buoyed it to a
higher finish than where it started.
 With no key economic reports due in Canada this week, the
market will turn its attention to Dodge’s speech on Wednesday
to the St. John’s Board of Trade.
 Dodge will speak about demographics and labor, but the
market will listen closely for any comments on the Canadian
dollar’s surge and how that could factor into future policy
decisions.
 The Bank of Canada has hinted at imminent monetary policy
tightening and market expectations are now calling for rate
increases in July and September. Higher interest rates would
raise the yield on Canadian investments.
 ”It really just seems like the market is looking for a key
reason to sort of go one way or the other,” said Watt.
 BONDS STUCK LOWER AFTER DATA
 Canadian bond prices were stuck lower after a pair of
Canadian economic reports did little alter current sentiment.
 New housing prices jumped 0.8 percent in April from March,
the biggest monthly gain since August 2006. Canadian industries
ran at 83.0 percent capacity in the first quarter, the first
increase after four quarterly declines, but still a touch shy
of market expectations.
 Bond prices have fallen sharply in the past month, given a
slew of up beat economic reports that have had the market
anticipating rate hikes in the near term.
 ”I don’t think you can attribute it to any particular
positioning at this point in time because frankly the numbers
out today aren’t Grade A figures in Canada and I think I think
people are still taking a breather from last week,” said Eric
Lascelles, strategist at TD Securities.
 The two-year bond was down 5 Canadian cents at C$98.23 to
yield 4.703 percent, while the 10-year bond slipped 5 Canadian
cents to C$95.37 to yield 4.637 percent.
 The yield spread between the two-year and 10-year bond was
-6.9 basis points, compared with -4.9 basis points at the
previous close.
 The 30-year bond slid 20 Canadian cents to C$118.40 to
yield 4.536 percent. In the United States, the 30-year treasury
yielded 5.241 percent.
 The three-month when-issued T-bill yielded 4.33 percent,
unchanged from the previous close.

Canadian government debt fell, pushing yields on two-year bonds to the highest since 2001, on concern that accelerating inflation will prompt central banks worldwide to raise interest rates.“Inflation fears are back in investors’ minds,” said Sal Guatieri, a senior economist with BMO Capital Markets in Toronto. “That’s got bond investors quite worried, and that will continue to push yields higher.”

The yield on Canada’s two-year bond rose 8 basis points this week, or 0.08 percentage point, to 4.68 percent. It reached a peak of 4.72, the highest since August 2001. The price of the 3 3/4 security maturing in June 2009 fell 12 cents to C$98.27 in Toronto. Yields move inversely to prices.

Guatieri said the two-year bond yield may climb to 4.90 percent by the end of the year.

New Zealand’s central bank raised its benchmark interest rate a quarter-percentage point on June 7 to a record 8 percent. Investors in the U.S. reduced bets the Federal Reserve will need to lower borrowing costs this year.

Yields in Canada climbed for a third-straight week as investors raised bets that the Bank of Canada will increase borrowing costs more than once to stem inflation. The yield on the December bankers’ acceptance contract rose to 4.92 percent from 4.53 percent a month ago on the Montreal Exchange.

The central bank held its target rate for overnight lending between banks at 4.25 percent on May 29 and said it may raise borrowing costs “in the near term” should inflation stay above its 2 percent target. Policy makers next meet July 10.

`Deteriorated’ Inflation Climate

“The Canadian inflation climate has deteriorated during recent months,” said Yanick Desnoyers, a senior economist with National Bank Financial in Montreal. “It’s time to get ready for a new round of monetary tightening.”

Consumer prices, excluding volatile components such as energy, accelerated in April to the highest level in more than four years, Statistics Canada said last month.

Canada’s economy added 9,300 jobs last month after shedding 5,200 positions in April, Statistics Canada said yesterday. Employers were expected to add 14,300 new jobs in May, according to the median of 24 economists’ forecasts in a Bloomberg survey. The unemployment rate held at 6.1 percent.

Guatieri said the Bank of Canada will raise interest rates as soon as July “because economic data has been very supportive of this move.”

The Canadian dollar was little changed this week, closing at 94.24 U.S. cents in Toronto yesterday. One U.S. dollar bought C$1.061.