The World Forum - April 13th, 2024

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Bank of Canada says interest rates may not be high enough


Bank of Canada Governor Tiff Macklem on Thursday said interest rates may not be high enough to bring inflation back down to target, sending a hawkish message after holding borrowing costs at a 22-year high a day earlier.

On Wednesday, the Bank of Canada (BoC) kept its key rate at 5%, noting the economy had entered a period of weaker growth, but said it could hike again should price pressures persist.

Inflation has remained above the bank's 2% target for 27 months.

In a speech to the chamber of commerce in Calgary, Alberta, Macklem said one possible reason for inflation staying above target was that it might be taking longer for rates to work, but the other possibility "is that monetary policy is not yet restrictive enough to restore price stability".

He added: "And unfortunately, the longer we wait, the harder it's likely to be to reduce inflation."

The central bank hiked rates by a quarter point in both June and July in a bid to tame stubbornly high inflation. However Macklem said that now "there is little downward momentum to underlying inflation".

Canada's gross domestic product unexpectedly shrank an annualized 0.2% in the second quarter, a sign the economy could have already entered a recession as higher rates sink in. But inflation accelerated in July to 3.3% and core measures remained at about 3.5%.