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The Bank of Canada (BoC) may not have to raise its key overnight rate further if inflation cools in line with the central bank’s expectations, Governor Tiff Macklem said in an interview with the Canadian Broadcasting Corp.

“The economy is not overheated anymore and ... we do think there’s more inflation relief in the pipeline, and if that comes through, we won’t have to raise rates further,” Macklem said in a CBC Radio interview aired on Thursday.

The BoC on Wednesday held its key overnight rate at a 22-year high of 5.0 per cent but left the door open to more hikes, saying price risks were on the rise and inflation could exceed its target for another two years.

The bank increased rates 10 times between March 2022 and this July, with inflation peaking at more than 8 per cent last year.

Most analysts do not expect another rate increase in this cycle, and money markets see only a 14 per cent chance of one when the BoC makes its next policy announcement on Dec. 6.

A Reuters poll of economists published on Friday showed that the majority do not see rates going higher, but they do see them staying at the current level for at least six months.

Macklem said the BoC would be looking for “clear evidence” inflation is heading toward the bank’s 2 per cent target before it would cut interest rates.

“If we can get inflation down, interest rates can come down from where they are. They’re probably not going back to where they were pre-COVID,” Macklem said on the CBC’s “The Current” morning radio show.

The BoC’s key overnight rate was 1.75 per cent at the start of 2020, before being rapidly slashed to 0.25 per cent when the pandemic hit.

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