BOC’s Macklem: Canada's inflation remains too high, more rate hikes needed

“Canadian inflation remains high and broad-based and more interest-rate increases will be needed to cool the overheating economy,” said Bank of Canada (BOC) Governor Tiff Macklem in a testimony at the House of Commons late Wednesday, reported Reuters.

Additional comments

We expect our policy rate will need to rise further.

How much further policy rates would need to rise will depend on how monetary policy is working to slow demand.

Inflation in Canada remains high and broad-based, reflecting large increases in both goods and services prices.

We have yet to see a generalized decline in price pressures.

Canadian economy is still in excess demand and it’s overheated.

Higher interest rates are beginning to weigh on growth.

Effects of higher rates will take time to spread through the economy.

Expect growth will stall in the next few quarters; once we get through this slowdown, growth will pick up.

We are trying to balance the risks of under- and over-tightening.

The tightening phase will come to an end, and we are getting closer, but we are not there yet.

with inflation so far above our target we are particularly concerned about the upside risks.

BOC balance sheet peaked in March 2021 at CAD575bn, as of last week it was around CAD 415bn, a drops of around 28%.

There is a risk that inflation in Canada is more embedded, more entrenched; also some possibilities that inflation could come down faster.

Expecting to see businesses pass on input price decreases as quickly to consumers as they did with increases on the way up.

USD/CAD bears take a breather

USD/CAD remains sidelined, actually bouncing off the intraday low to 1.3355, despite the hawkish comments from BOC’s Macklem.

Also read: USD/CAD tumbles toward 1.3350 after the Fed released dovish minutes