–Senior Deputy Governor Says BOC ‘Not on Autopilot’ in Rate Actions
–Rogers: ‘We Have Tools, Committed to Getting Inflation Back to Target’
By Max Sato
(MaceNews) – Interest rates in Canada need to rise further to stave off overheating from a “remarkably fast” recovery from the pandemic-caused slump but policymakers are “not on an autopilot” in credit tightening and will monitor closely how the economy responds to higher borrowing costs, Bank of Canada Senior Deputy Governor Carolyn Rogers said Tuesday.
“Canadians trusted us to respond with strength and conviction when the economy needed support during the pandemic,” she said in a speech on “The Bank of Canada: a matter of trust” at a Toronto event hosted by Women in Capital Markets. “And they’re counting on us now to lower inflation. We take that trust seriously.”
“We have the tools, we have the track record, and we are committed to getting
inflation back to target,” she concluded.
Her remarks followed the bank’s decision on April 13 to jack up its policy rate – the target for overnight lending rates – by 50 basis points to 1% from 0.5%, as widely expected, after raising it by 25 basis points from its record low 0.25% in March as part of its campaign to cool off the red-hot inflation and housing market toward more sustainable economic growth under price stability.
The bank’s Governing Council also decided to begin the process of quantitative tightening, effective April 25. It will stop reinvesting in government bonds and let its swollen balance sheet shrink in line with economic recovery from the pandemic-caused slump.
The BOC is widely expected to raise the key rate by another 50 basis points to 1.5% in its next policy announcement on June 1.
“Interest rates remain low, but they are rising, and they will need to move higher still,” Rogers said, but added that BOC policymakers are aware that Canadians are concerned about more expensive borrowing costs.
“We will be watching closely to see how the economy responds to higher interest rates. We’re not on autopilot,” she said. “We will be looking for signs that the economy is returning to balance.”
In response to questions, Rogers said Canadians understand much of surging consumer inflation is coming from a spike in international commodities markets, which she said should subside eventually.
“If we keep inflation expectations anchored, we do think inflation will come down gradually,” she said.
Asked on what components of inflation data BOC officials are focused, she replied that they are monitoring all of the three components of core inflation and that their focus is on “the level of inflation,” adding that energy and housing prices are a key area of concern for Canadians.
“We don’t target on components of inflation. We target the overall level of inflation in the economy,” she said.
The latest data showed that total consumer price index jumped 6.7% on the year in March, a fresh 31-year high, while the CPI trim rose 4.7%, the CPI median gained 3.8% and the CPI common was up 2.8%. The Bank of Canada targets 2% inflation inside its control range of 1% to 3%.
Rogers said the BOC is watching both wages and goods prices. “The labor market is a really strong indicator right now of the excess demand in the Canadian economy,” she said. “This has been a difficult period of forecast. We have supply constraints, but now we have demand pressures.”