The Bank of Canada´s Governor Tiff Macklem said in a prepared speech at the Toronto Region Board of Trade that if they start to see signs that inflation is likely to get stuck materially above their 2% target, they are prepared to raise interest rates further. The BoC decided to pause interest rate hikes in March.
“We’re forecasting inflation to fall quickly to about 3% this summer and to reach the 2% target near the end of 2024. The projected decline from 3% to 2% is both slower and more uncertain. With growth anticipated to be weak through the rest of the year before picking up gradually next year, we expect services price inflation to ease and overall inflation to converge on the 2% target. But several things still have to happen for services price inflation to moderate in line with our forecast, and we are watching these closely.”
“Last month, Governing Council decided to hold its policy rate steady at 4½% as we assess whether monetary policy is restrictive enough to return inflation to the 2% target. We know that monetary policy works with a delay, and the effects of the tightening we’ve undertaken to date have not yet fully worked their way through the economy. If we start to see signs that inflation is likely to get stuck materially above our 2% target, we are prepared to raise rates further.”
“At the same time, the financial system needs to adjust to higher interest rates. This underscores the importance of sound risk management in financial institutions and vigilant supervision to identify and manage risks as the economy slows and the cost of funding adjusts to higher interest rates.”
The USD/CAD is trading at weekly lows, under 1.3530 on Thursday, with the Canadian dollar outperforming during the American session.
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