By Paul Vieira
OTTAWA-Bank of Canada Gov. Tiff Macklem said higher interest rates are working to moderate economic activity and price increases although it might take some time before inflation slows to the central bank’s 2% target.
“We are concerned progress has slowed” on the path toward 2% inflation, Macklem said Thursday in prepared remarks delivered in Calgary. “Monetary policy still has work to do to restore price stability for Canadians.”
On Wednesday, Bank of Canada officials opted to keep its key interest rate unchanged, at 5.0%, as the economy entered a weaker phase. However, the central bank said it remained worried about persistent underlying price pressures and stood ready to raise rates again unless conditions changed.
“With past interest rate increases still working their way through the economy, monetary policy may be sufficiently restrictive to restore price stability,” Macklem said. He added, though, that inflation – at 3.3% as of July – remains “too high, and there is little downward momentum in underlying inflation.”
On a year-over-year and short-term gauges, the Bank of Canada said underlying, or core, inflation is running at about 3.5%.
The Bank of Canada pause this week comes after back-to-back rate increases in June and July. He said data since mid-July are “providing clearer evidence that higher interest rates are moderating spending and rebalancing demand and supply in the economy.”
Higher interest rates are not intended to “kill economic growth,” Macklem said, adding the central bank aims for 2% inflation because then households won’t need to worry about rapid changes in cost of living on an annual basis.
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