Ontario premier urges Bank of Canada not to hike key interest rate in September

By Maria Babbage, The Canadian Press

TORONTO - The leader of the country's most populous province has a message for the Bank of Canada: don't hike interest rates next week.


Canada's economic recovery is still fragile and its leaders should be careful about doing anything that would increase expenses or drive up costs, Ontario Premier Dalton McGuinty said Wednesday.


"My advice to the Bank of Canada is: Just no more interest rate hikes — not at this point in time," he said.


"While we can say that the recovery has taken hold, it's not by any means a vigorous and robust recovery. It is modest."


The premier, who rarely wades into monetary policy, urged the central bank to put the brakes on any further hikes amid fears that the United States may slip into a double-dip recession.


"It points to the need for continuing prudence," he said.


"Try as we might, we cannot completely uncouple ourselves from the American economy. They're our single largest trading partner and consumer confidence — American consumer confidence — is a powerful factor in determining the health and vitality of our own economy here."


McGuinty made the remarks from a Toronto elementary school where he was promoting a new expense for Ontario: full-day kindergarten for four- and five-year-olds.


The self-described education premier announced plans last fall to forge ahead with the costly project despite the economic downturn and warnings of a record-setting deficit.


The program, which is expected to cost $1.5 billion a year once fully implemented, is being slowly phased in over five years, starting with 600 schools this fall.


Ontario is also seeing higher inflation than other provinces, largely due to the July 1 implementation of the new harmonized sales tax.


Consumer prices in Ontario rose 2.9 per cent in July — the largest year-over-year hike among the provinces — with the HST accounting for about 1.3 per cent of that increase. Canada's annual inflation rate rose by eight-tenths of a point to 1.8 per cent, according to Statistics Canada.


The Bank of Canada is meeting Sept. 8 to set interest rates. Currently, it's trendsetting rate is 0.75 per cent.


There are doubts that bank governor Mark Carney will proceed with a further rate hike, given a recent report indicating that Canada's economy slowed more than expected in the second quarter.


Statistics Canada reported Tuesday that the economy fell two per cent in the April-to-June quarter, as consumers tightened their pocketbooks, housing weakened and exports were squeezed by the weak American economy.


That could persuade the central bank to keep interest rates stable until there's evidence of a stronger recovery.


The Bank of Canada hiked interest rates in June for the first time in more than a year following first-quarter GDP growth that was the fastest pace in a decade.