Could another rate increase be on the way?
The Bank of Canada is not expecting a significant economic downturn and continues to see signs of resilience in the national economy, according to its governor Tiff Macklem.
While the country’s overall inflation rate sits much lower than at the beginning of the year, core inflation has proven to be sticky, leaving the prospect of further interest rate hikes – and a slower resulting economy as a result – on the table.
The five-year yield on Canada’s bonds had increased to 4.461% this month, the highest seen in 16 years. Still, Macklem pointed to positive indicators for the national economy.
"We're not going to be forecasting a serious recession," Macklem told reporters during a call from Morocco, where he was attending an IMF (International Monetary Fund) meeting.
"The strength of the economy, the strength of the labour market, and to the extent that people have good jobs – they're getting wage increases that will make it easier for them to digest the impacts when those mortgages are renewed," he said.
Macklem also stated that higher long-term bond yields were not a substitute to the action that needed to be done in order for inflation to fall down to the central bank’s target.
Will there be another interest rate hike?
Interest rates have spiked 10 times over the past 18 months, reaching a 22-year high of 5%. However, the central bank still does not see inflation slowing down to its 2% target until mid-2025.
With Macklem’s remarks, money markets had their bets about the possibility of another rate hike increase from a 27% chance to 31%.
However, when it comes to the upcoming policy deliberations, the central bank’s governor said that the Bank was still yet to decide on either letting the previous rate hikes work through the economy or raising it to counter the sticky inflation.
"What we're looking for are clear signs that core inflation, underlying inflation, those pressures are easing and inflation is going to be coming down," said Macklem.
The September consumer price inflation data is set to be published on October 17, while the rate announcement and an update of the central bank’s economic forecasts will take place on October 25.
