Interest rates could rise in 2013

The Bank of Canada will likely keep its trend-setting policy rate unchanged at one per cent Thursday despite recent positive economic developments, economists say.

However, even doves on interest rates now speculate that with the economy showing signs of improvement, bank governor Mark Carney may not keep rates on hold for all of 2013 as many had assumed.

Scotiabank economist Derek Holt says that given last week's upgrade of economic performance from Statistics Canada, the central bank may conclude that the output gap will close as early as the start of 2013, three-quarters earlier than its previous assumption.

And that may lead markets to start factoring in that interest rates are poised to start climbing sooner than previously believed, possibly even sometime this year.

Even the hint of movement on interest ratesthe bank rate has been at one per cent since September 2010 may be enough to apply upward pressure on the Canadian dollar, analysts say.