The Bank of Canada will not raise its benchmark interest rate until the slack in the country’s
economy is absorbed, which has not yet happened but is getting closer, Governor Tiff Macklem said in a newspaper opinion piece on Monday.
Macklem also noted that while inflation risks have increased – driven by pandemic-induced demand shifts, supply disruptions and higher energy prices – the central bank continues to view the recent dynamics as transitory.
“For the policy interest rate, our forward guidance has been clear that we will not raise interest rates until economic slack is absorbed. We are not there yet, but we are getting closer,” Macklem wrote in an op-ed for the Financial Times newspaper.
He added that the central bank’s policy framework – a flexible inflation target focused on the two per cent midpoint of a 1-3 per cent control range – means that Canadians can be confident it will keep inflation under control, while supporting a full recovery.
“What our resolve does mean is that if we end up being wrong about the persistence of inflationary pressures and how much slack remains in the economy, we will adjust. Our framework enables us to do just that,” Macklem said.
Inflation has soared in recent months as countries around the world have rebounded from the pandemic, putting pressures on global supply chains. Canada’s headline inflation rate rose to
4.4 per cent in September, the sixth consecutive month above the bank’s targeted range.
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The Bank of Canada signaled last month that its first rate hike could come as soon as April 2022, though money markets are betting on a hike in March, with five in total in 2022.
The Canadian dollar was trading 0.2 per cent higher at 1.2517 to the greenback, or 79.89 U.S. cents,
(Reporting by Julie Gordon in Ottawa, additional reporting by Fergal Smith in Toronto; Editing by Bernadette Baum)
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