Bank of Canada gives reasoning for another significant rate hike

On Thursday, the Bank of Canada clearly outlined its position on interest rates by expressing no intention to slow down the pace of rate hiking. As it was stated by the bank’s Governor Tiff Macklem, there is currently no indication that underlying inflation is weakening.

In a recent speech, delivered to a business audience in Halifax, Tiff Macklem told about the inner sources of inflation. According to his words, such sources haven’t lost any impact on the situation. Moreover, they are gaining more and more significance, although the global pressure has started showing some signals of weakening.

As it was said by Macklem, any considerable indications of underlying inflation decline are yet to be seen. Considering this fact, along with still high near-term inflation expectations, it might be concluded that the continuation of interest rate increase is justified.

Summarizing the raised topics, Macklem said that many things need to be accomplished. He also stated a necessity of having more information to start considering a change of course towards a more aligned way of acting, based on making one decision after another.

In addition, the Governor of the Bank of Canada talked about labor markets remaining tight, and demand still exceeding supply. These factors still persist, although some forward-looking indicators signal a possible start of slowdown of the country’s economy.

The statements made by Macklem had a notable influence on expectations of money markets, with an increase by 50 basis points becoming a likely and realistic result of the bank’s decision. The decision is planned to be made on October 26. The central bank has already raised the policy rate by 300 basis points this year, with the rate level reaching 3.25%, which is a record figure in 14 years.