BoC's Macklem stresses lingering threat of global volatility

The central bank has not yet ruled out further rate hikes

BoC's Macklem stresses lingering threat of global volatility

While the Bank of Canada remains committed to its interest rate freeze, Governor Tiff Macklem warned that further turmoil in global banking and domestic financial conditions could prove to be a wrench in the central bank’s current policy rate strategy.

“If financial stress were to lead to more tightening than expected and if this were to persist, we would need to take this into consideration as we set the policy rate to achieve our inflation target,” Macklem said in a speech to the Toronto Region Board of Trade earlier this week.

Macklem said that the BoC is not yet ruling out further hikes, despite global financial stability risks appearing “contained” at the moment.

“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,” Macklem said, as reported by Bloomberg.

The benchmark policy rate is currently at 4.5%, after an unprecedented series of rate hikes over much of 2022.

Macklem said that the BoC’s strategy is currently weighed towards inflation expectations and labour market growth, and noted that getting inflation back to the central bank’s 2% target will “take time.”

At the same time, Macklem said that it is still “too early to really be thinking about interest rate cuts.”

“Inflation fell from its peak of 8.1% last year to 4.3% in March,” Macklem said. “We expect it will decline to around 3% this summer. This is good news and shows that interest rate increases are working to rebalance the economy. But the work of monetary policy is not done.”

“Getting all the way there will take time and involves risks, notably that services price inflation could stay higher for longer than we expect.”