Macklem not ruling out future BoC rate hike to get to 2% inflation target

Governor of the Bank of Canada Tiff Macklem says the central bank is prepared to raise the policy rate even further as it attempts to bring inflation back to its 2 per cent target in 2024.

Governor of the Bank of Canada Tiff Macklem says the central bank is prepared to raise the policy rate even further as it attempts to bring inflation back to its 2 per cent target in 2024.

The Bank held its policy rate at 4.5 per cent on Wednesday, remaining confident inflation will continue to decline from 5.2 per cent in February to 3 per cent by the middle of this year. However, the Bank acknowledged getting inflation back to its 2 per cent target in 2024 will be more challenging.

“Getting inflation the rest of the way back to 2 per cent could prove to be more difficult because inflation expectations are coming down slowly, service price inflation and wage growth remain elevated, and corporate pricing behaviour has yet to normalize,” reads the statement released on Wednesday.

The bank indicated it is prepared to raise the policy rate further if needed. 

“If monetary policy is not restrictive enough to get us all the way back to the 2 per cent target, we are prepared to raise the policy rate further to get there,” said Macklem during a press conference in Ottawa on Wednesday.

Persistent costs of services in the Canadian economy remain the driving factor in inflation, with a tight labour market and wage growth remaining around 4 to 5 per cent. Statistics Canada reported 205,000 net new jobs in the first three months of this year, exceeding expectations, and the unemployment rate remains at a historic low of 5 per cent.

Macklem said the central bank is using the pause in rates to assess whether it has done enough and considerations are underway on whether interest rates need to stay high for longer.