By Paul Vieira
The Bank of Canada’s Deputy Governor, Carolyn Rogers, has stated that the central bank will not consider interest-rate cuts until there is evidence of underlying inflation slowing towards 2%. This reaffirms the position taken by Bank of Canada Governor Tiff Macklem during his testimony before legislators last week.
Rogers addressed an audience in Vancouver, British Columbia, stating that the recent rise in interest rates is starting to have an impact. She noted that the economy is beginning to balance out, alleviating pressure on prices, and that corporate pricing behavior is starting to normalize.
While Canadian economic activity saw a decline in the second quarter, early estimates suggest that gross domestic product may have stalled again in the third quarter. Rogers explained that the bank is closely monitoring this slowdown in activity to see its effects on underlying inflation, which excludes volatile-priced items such as food and energy. Despite core inflation hovering around 3.5% for about a year, the bank aims to achieve and maintain a 2% inflation rate.
“We don’t need to see inflation go all the way back to 2% before we start talking about reducing rates,” Rogers highlighted. “But we do need to see, and be confident, that the momentum is going in the right direction.”
Senior officials at the Bank of Canada previously debated whether another rate increase would be necessary to bring inflation back down to 2% from its current level of 3.8%. Ultimately, a compromise was reached, and the decision was made to maintain the policy rate at 5% while expressing readiness to raise it further if inflation fails to slow.