2023-09-08 15:38:58
The Bank of Canada may need to raise interest rates further as inflation might remain high for some time, central bank Governor Tiff Macklem warned Thursday.
The governor’s remarks, taken from the text of a speech prepared for the Calgary Chamber of Commerce, follow the central bank’s decision to maintain its key interest rate at 5% amid growing signs of an economic slowdown .
Statistics Canada reported last week that the economy contracted in the second quarter, while the unemployment rate has been rising for three months.
Still, Macklem said Thursday that the central bank’s board had agreed that rates may need to rise once more if inflationary pressures persist. “In an effort to properly balance monetary tightening, the board of directors decided [mercredi] to maintain the key rate at 5% and agreed that it may be necessary to increase it further if inflationary pressures persist,” said Mr. Macklem.
Annual inflation stood at 3.3% in July in Canada, but the Bank of Canada expects it to accelerate in the coming months, before falling once more.
Objective: 2%
Mr. Macklem devoted much of his speech to defending the central bank’s 2% inflation target. Although inflation may appear close to this target, he stressed, reaching this threshold is crucial to maintaining the predictability and stability of the economy.
The central bank boss said slowing progress in reducing inflation might mean that previous rate hikes need more time to take effect, or that interest rates are not quite high.
The central bank is looking for evidence that inflation is not only slowing, but that sharp price increases are less widespread in the economy.
For that to happen, Mr. Macklem said demand in the economy would have to continue to slow. “But I want to make it clear: we are not looking to stop economic growth,” he said. Instead, the governor said the best way for the central bank to support the economy was to ensure inflation returned to its 2% target.
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