Bank of Canada doesn’t exclude the possibility of a sharp rate hike

Bank of Canada Governor Tiff Macklem stated that he doesn’t exclude the possibility of another sharp rate hike for the purpose of fighting inflation.

Answering the questions in the Senate's banking, trade and economy committee, Macklem outlined that Canada's central bank notices signs of the monetary policy tightening’s impact on the economy, which begins to slow down. According to forecasts, the growth of the country’s economic activity will slow down over the three upcoming quarters. However, demand is still quite excessive, and it forces the bank to be prepared for yet another rate hike, which might be quite steep.

At the same time, last week the rate increased lower than it was expected. It reached the level of 3.75% by a 50 basis points hike.

Meanwhile, inflation remains higher than its target level of 2%, even though it declined from an 8.1% peak to 6.9% in recent times.

Canada has not experienced inflation at these levels for quite a long time, therefore, people are frustrated by the lack of price stability. Regarding this, the bank's primary goal is to bring inflation back to its target, even if it means to raise rates sharply. Unfortunately, as Macklem stated himself, there are no easy ways to restore price stability.

The governor also stressed the fact that the rate growth will depend on supply and demand response, as well as the direct impact of this growth on inflation and inflation expectations. Usually, it takes time.