Bank of Canada could raise rates half a per cent this year, says RBC outlook

TORONTO – A global outlook from Royal Bank says an improved U.S. economy could be a boon for Canada — and that could push the central bank to raise interest rates before the end of the year.

Mark Chandler, head of fixed income and currency strategy at RBC Capital Markets, says he expects the Bank of Canada to boost rates by as much as half a percentage point.

An increase in rates would rely on domestic economic growth to pick up the pace, rather than slow as it did late last year.

Royal Bank doesn’t expect momentum to decline, however, an instead suggests that if the U.S. economy continues to pick up the pace, then demand will climb for some of Canada’s biggest exports into the latter half of 2013.

The industries that would benefit most include ones that produce materials for the recovering U.S. housing sector, as well as the automotive industry, capital spending, and industrial production.

He says growth in the U.S. would also push commodity prices higher and keep the Canadian dollar elevated.