Bank of Canada says economic slack not yet absorbed, but ‘getting closer’

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OTTAWA (Businesshala) – The Bank of Canada will not raise its benchmark interest rate until the country’s economy has absorbed the sluggishness, which hasn’t happened yet but is getting closer, Governor Tiff McCalem said on Monday. Said in a newspaper.

FILE PHOTO: A sign is pictured outside the Bank of Canada building in Ottawa, Ontario, Canada May 23, 2017. Businesshala/Chris Wattie

Macklem also noted that while inflation risks have increased – driven by pandemic-induced demand changes, supply disruptions and higher energy prices – the central bank continues to view the recent dynamics as fleeting.

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“As for the policy interest rate, our forward guidance is clear that we will not raise interest rates until the economic slowdown is absorbed. We are not there yet, but we are getting closer,” McCalem wrote in an op-ed for the Financial Times newspaper.

He said the central bank’s policy framework – a flexible inflation target centered at the 2% midpoint of the 1-3% control range – means Canadians can be confident that inflation will be kept under control while supporting a full recovery.

“What our resolve means is that we will adjust if we are wrong about whether inflationary pressures are going to remain and how sluggish the economy remains. Our framework enables us to do that,” Macklem said.

The Bank of Canada’s inflation target expires at the end of the year and is working jointly with the Liberal-led federal government to decide whether to keep the current framework or try an alternative. .

The main opposition Conservatives on Sunday called for a rapid renewal of the current target amid rising inflation.

Inflation is rising as countries around the world rebound from the pandemic, putting pressure on global supply chains. Canada’s inflation rate rose to 4.4% in September and is expected to reach 4.7% in October, with that data on Wednesday.

The Bank of Canada indicated last month that its first rate hike could come by April 2022, though currency markets are betting on a hike in March, with a total of five in 2022.

The Canadian dollar was trading 0.2% higher at 1.2517 on the greenback, or 79.89 US cents.

Reporting by Julie Gordon in Ottawa, Additional reporting by Fergal Smith in Toronto; Editing by Bernadette Baum and Matthew Lewis

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