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BOC: interest rates must remain high – Sharon Kozicki

The Deputy Governor of the Bank of Canada, Sharon Kozicki declared on Tuesday that interest rates must remain high. He noted that they are concerned about underlying inflation.

He explained that core inflation has moderated, but the latest Consumer Price Index report indicates that inflationary pressures remain widespread.

Main conclusions of the speech:

Since inflation was very high last year, interest rates had to rise a lot. That’s why we acted forcefully and raised them quickly. Inflation has fallen, but it is still too high. And that tends to mean that real interest rates have to remain high.

When making monetary policy decisions, the Bank of Canada must take into account the multiple ways in which changing economic circumstances affect different households. We do not set our policy based on what happens to a subset of households or the price of a specific good or service.

We are seeing signs that monetary policy is working. Both inflation and inflation expectations have fallen, and excess demand in the economy is declining. And our previous measures will continue to have an effect as they permeate the economy.

However, in our most recent monetary policy decision, we also expressed concern about the persistence of core inflation. We will continue to assess whether the evolution of excess demand, inflation expectations, wage growth and corporate pricing behavior are compatible with achieving the 2% inflation target. We are ready to raise the official interest rate further if necessary.

Market reaction

USD/CAD is trading around 1.3440, unaffected by Kozicki’s comments. The pair bottomed at 1.3378, the lowest level in a month, and then pared losses.

Source: Fx Street

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