Central bank's deputy governor lays out near-future strategy
While the Bank of Canada has vowed to remain ready to use “forceful” strategies if necessary, it will also become more “data-dependent” in its formulation of policy over the next year, according to deputy governor Sharon Kozicki.
“With the labour market still tight and businesses still finding it easy to raise their prices, Governing Council agreed that the economy still needs a more sustained moderation of demand,” Kozicki said, but she also stressed that the central bank is now “moving from how much to raise interest rates to whether to raise interest rates.”
The less heavy-handed approach could mean a moratorium on rate hikes as early as January. Over the course of 2022, the BoC raised its benchmark policy rate to a red-hot 4.25%, a level not seen since 2008.
Further policy tightening still on the cards
“If we are surprised on the upside, we are still prepared to be forceful,” Kozicki said. “But we recognize that we have raised interest rates rapidly and that their effects are working their way through the economy.”
The central bank’s next rate announcement on January 25 will heavily depend on incoming economic data, taking into account that inflation has been on a downward slope over the past few months.
“On one hand, inflation remains too high, with many of the goods and services Canadians regularly buy showing large price increases,” Kozicki said. “On the other hand, three-month rates of change in core inflation have come down, an early indicator that price pressures may be losing momentum.”
