BoC says steep rate hikes could be coming to an end
by Canadian Press
The bank has also had to keep raising rates in part to make up for past forecasts on inflation that fell short.
The Bank of Canada’s steep rate hike cycle could be coming to an end, but don’t expect rates to start going back down any time soon.
Following Dec. 7’s half-percentage point increase, future decisions will depend on a range of data, including consumer demand, business activity, and of course inflation, said Bank of Canada Deputy Governor Sharon Kozicki on Dec. 8.
“We’ve gone from a world where we were trying to decide how much each policy increase needed to be, to a world where we’re now asking the question of if we need to be increasing the policy rate,” she said at a press conference after delivering a speech in Montreal.
The shift in tone is significant after seven consecutive rate increases that have left the target rate at 4.25 per cent for the highest since 2008.
The bank, however, showed that it’s still concerned inflation could become entrenched (meaning consumers start to expect and accept higher prices ahead) by increasing its policy rate Wednesday by a half percentage point to come in at the higher end of expectations.
“We’re in a world where we still have high inflation. We still have high short-term expectations of inflation, we still have evidence of excess demand,” said Kozicki.
The bank has also had to keep raising rates in part to make up for past forecasts on inflation that fell short. Kozicki said that the “lion’s share” of past forecast errors were because the bank had not anticipated a lot of global factors, making up about two-thirds of forecast errors. She said domestic factors have become more important this year, emphasizing the need for the bank’s aggressive policy actions.
While rates are at an almost 15-year high, Kozicki warned that it will still take some time for those higher rates to flow through the economy and push the inflation rate, which stood at 6.9 per cent in October, back toward the bank’s two per cent target.
The bank is aware these higher rates are putting pressure on borrowers, but the strain is also part of the plan to reduce domestic demand that is still too high.
