The Bank of Canada left its main interest rate untouched at 1% Tuesday   while
painting a brighter economic outlook and hinting for the first time since last
summer that it’s beginning to look for an opportunity to raise borrowing costs.

The decision to stand pat for a 13th consecutive meeting was expected. But
after weeks of sunnier rhetoric from Governor Mark Carney amid a strengthening
domestic recovery, Bay Street analysts had been debating how far he would go in
trying to reshape expectations that he may be on hold until late next year.

The statement on Tuesday’s decision was vague about timing, saying only that it
may become necessary to increase rates, but that this would depend on “domestic
and global economic developments.” But, just by saying so, Carney is clearly
starting to lay the groundwork for rate hikes if the Canadian economy and the
global backdrop continue to improve. Significantly, he boosted his 2012 growth
forecast for Canada by four tenths of a percentage point, to 2.4%. And though
he cut his 2013 forecast by the same amount, to 2.4%, the slack in the economy
is now projected to be chewed up in the first half of 2013 instead of in the
third quarter of next year, so possibly six months earlier.