By Julie Gordon and David Ljunggren
OTTAWA (Reuters) -The Bank of Canada will be nimble and potentially “forceful” in tackling uncomfortably high inflation, a senior official said on Wednesday, setting the stage for an aggressive campaign of interest rate increases.
Deputy governor Timothy Lane, speaking to a university audience, said there was a risk inflation could continue to be more persistent than forecast, and the central bank was increasingly focused on countering the upside risks.
“We will be nimble — and if necessary, forceful — in using our monetary policy tools to address whatever situation arises, as we have done throughout these turbulent times,” Lane said.
Canada’s annual inflation rate hit a fresh 30-year high at 5.1% in January, official data showed on Wednesday. It was the 10th consecutive month the rate had been above the Bank of Canada’s 1-3% control range.
“Currently, with inflation well above our target, we are increasingly focused on countering the upside risks,” Lane said.
The economic rebound was faster and inflation persistently higher than forecast because demand was more robust and supply more constrained than expected, said Lane.
Still, the central bank expects supply disruption to ease and inflation to come down quickly in the second half of 2022, though it is “alert to the risk that inflation may again prove more persistent”, Lane said.
The central bank in January said the slack in Canada’s economy had been absorbed and interest rates would need to rise from their current record low of 0.25%. Governor Tiff Macklem has said Canadians should expect multiple increases.
Money markets are betting on a first hike on March 2, likely to 0.50%, with about a 30% chance of a larger 50-basis-point increase. The Canadian dollar was up 0.3% at 1.2680 to the greenback, or 78.86 U.S. cents, after Lane’s comments.
(Reporting by Julie Gordon in Ottawa; Editing by Jan Harvey)
