By Paul Vieira
OTTAWA-Bank of Canada’s No. 2 official, Carolyn Rogers, reiterated Thursday the central bank will not consider interest-rate cuts until there’s solid evidence that underlying inflation is slowing toward 2%.
“We are not there yet” regarding rate cuts, Rogers said in response to questions from a Vancouver, British Columbia, audience, following a speech on financial stability. Her remarks largely mirrored testimony from Bank of Canada Gov. Tiff Macklem before legislators last week.
Rogers told the Vancouver audience that the sharp rise in interest rates is “starting to work. We are seeing … the economy coming back to balance, so the pressure on prices is easing. And we’re seeing corporate pricing behavior starting to normalize a bit.”
Canadian economic activity declined slightly in the second quarter, and early estimates from Statistics Canada suggest gross domestic product stalled again in the third quarter.
Rogers added the bank is waiting for the slowdown in activity to weigh on underlying, or core, inflation, which strips out volatile-priced items like food and energy. Three-month gauges of core inflation have remained at about 3.5% for about a year. The bank’s mandate is to set rates with the goal of achieving and maintaining 2% inflation.
“We don’t need to see inflation go all the way back to 2% before we start talking about reducing rates,” she said. “But we do need to see, and be confident, that the momentum is going in the right direction.”
According to a summary of Bank of Canada deliberations ahead of last month’s rate decision, some senior central bank officials argued another rate increase would eventually be necessary to wrestle inflation down to 2% from its current 3.8% level. Officials came up with a compromise, the minutes indicated, in which they agreed to exhibit patience and keep the policy rate unchanged at 5%, while clearly stating in the rate-policy announcement that they were prepared to raise its policy rate further should inflation fail to slow.
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