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Bank of Canada Moving from "How Much" to Raise Rates to "Whether" to Raise Rates

Economic Indicators Dec 08, 2022 13:44
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By Ketki Saxena 

Investing.com -- In a speech today in Montreal, Bank of Canada Deputy Governor Sharon Kozicki struck a decidedly dovish note, stating that the Bank of Canada’s monetary policy is now “moving from how much to raise interest rates to whether to raise interest rates”. 

Kozicki noted that the bank is moving to a more finely calibrated, “data-driven approach” as the Canadian economy cools, and is now “considering whether the policy interest rate needs to rise further to bring supply and demand back into balance and return inflation to target.”

Yesterday, the Bank of Canada raised interest rates by a larger-than-expected 50 basis points, taking its benchmark policy rate to 4.25%. It also hinted that it is considering the end of its aggressive rate hike cycle, although another rate hike may be on the cards. 

In today’s speech, while Kozicki noted the bank is “still prepared to be forceful” in case of an upside surprise on inflation, she reiterated that the Bank policymakers  “recognize that we have raised interest rates rapidly and that their effects are working their way through the economy.”

However, the BoC deputy governor noted that “Despite signs that tighter monetary policy is working, our economy is still in excess demand”, and labour markets remain tight. 

Kozicki also noted a “mixed picture” on inflation, which “remains too high”, but on a positive note, shows that “three-month rates of change in core inflation have come down, an early indicator that price pressures may be losing momentum.”

The three month rate of change is the key metric the Bank of Canada will be watching, Kozicki noted, and will need to see these rates “come down even further and be sustained” in order to “make meaningful progress towards [the Bank’s] target."

Bank of Canada Moving from "How Much" to Raise Rates to "Whether" to Raise Rates
 

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