Bank of Canada Governor Tiff Macklem said Friday that the central bank will decide at its next monetary policy meeting whether to be patient or raise interest rates further. The Bank of Canada will announce its decision on October 25.
Mr. Macklem participated in a virtual roundtable with journalists on Friday morning on the sidelines of the annual meetings of the International Monetary Fund (IMF) in Marrakech, Morocco.
“I expect the focus will be on whether we stay with a 5% policy rate and let past interest rate hikes act on the economy and ease price pressures , or whether the weight of evidence of all these economic indicators, when taken together, tells us that further action is necessary to restore price stability,” said Mr. Macklem.
The governor noted that although demand in the economy was slowing, underlying inflation — which eliminates price volatility — had remained persistent over the past six to eight months. “We’re not really seeing any downward momentum in underlying inflation, and that’s concerning,” Macklem admitted.
The Bank of Canada kept its key interest rate unchanged last month, but it did not close the door to further rate hikes if necessary. Canada’s annual inflation was 4% in August. Data for September is due to be released next week.
Israel-Hamas War
The IMF meetings come as the conflict between Israel and Hamas continues and risks intensifying. Asked what effect the conflict might have on the global economy, Macklem said it was too early to tell. “It really depends on how much the situation escalates,” Macklem said.
The Russian invasion of Ukraine in February 2022 had a significant effect on commodity prices, fueling the surge in inflation. Since then, price growth has slowed significantly and economic conditions are worsening as central banks around the world raise interest rates.
The IMF recently released an updated economic outlook, warning that the global economy had lost momentum as higher interest rates took hold.
Symptoms of inflation
In Canada, the economy also slowed, contracting in the second quarter of the year. The job market also weakened, as the number of job vacancies fell and the unemployment rate increased slightly. Yet job growth continues as the Canadian population increases.
Mr. Macklem said unrest caused by rising interest rates in the political and public spheres, such as strikes in Canada and other countries, were symptoms of high inflation. “Inflation erodes trust in institutions, it erodes trust in governments. It makes people feel ripped off,” Mr. Macklem argued.
Restoring price stability is the best way to resolve these problems, the governor argued, while acknowledging that achieving this would cause financial hardship for families.