Julie Gordon and David Ljunggren
OTTAWA (Reuters) – Bank of Canada grapples with fastest price in nearly 40 years Rising, early rate hikes are a key strategy, a senior official said on Thursday, warning of persistent risks of high inflation.
Senior Deputy Governor Carolyn Rogers )), at the central bank to raise the policy rate to Speech the day after the year high of 3. 25%, expressing concern that businesses and consumers will start making long-term decisions based on today’s high inflation.
“Monetary policy has to tighten further to bring inflation back down when you have this kind of spiral, which is why we’re focused on avoiding it,” she told Calgary, Alberta said in a question-and-answer session after the presentation to a business audience.
“Raising rates early is one of the key strategies that we believe can help us avoid this.”
Rogers reiterated in his speech the need for further rate hikes , but did not specify how much higher, instead noting that it would take up to two years for a rate hike to have a full impact on inflation.
“It will take some time to get inflation back to 2 percent. We also know there can be bumps along the way,” she said.
This clearly shows that central bankers are “blind about how high interest rates need to rise,” said Royce Mendes, head of macro strategy at Desjardins Group, in a note. wrote.
“If monetary policymakers have to choose between recession and inflation in the short term, their actions will be guided by the latter,” he added.
While Canada’s inflation rate fell from 8.1% in June to 7.6% in July, core measures of inflation continued to rise, all above 5%, Rogers said.
“This shows how strong underlying inflation is in Canada,” she said. To date, the central bank has grown rapidly by 300 basis points in value in just six months, outpacing its peers in major economies.
Bank of Canada’s July forecast for inflation to be well above 2022 and 2023 2% target , then ends at 7 2024. But upside risks remain, Rogers said.
“We know that Canadians have accumulated additional savings during the pandemic, so consumer spending may have more momentum than we expected, making inflation more persistent,” she said.
“We always thought the Canadians would draw it down,” she added later in response to a question. “We haven’t seen a lot of this.”
CAD/USD rose 0.1% to 1. 3115, or 76. cents.
