Bank of Canada’s Kozicki: Interest rates need to stay high

According to Deputy Governor Sharon Kozicki of the Bank of Canada, interest rates must continue to be high. She emphasised how worried they are about the underlying inflation. The latest Consumer Price Index report shows that inflationary pressures are still widespread, she said, despite the fact that core inflation measures have decreased.

Kozicki’s remarks have no impact on the USD/CAD, which is trading at approximately 1.3440. The pair hit its lowest point in a month at 1.3378 before cutting losses.

Key Quotes:

When making monetary policy decisions, the Bank of Canada must consider the many ways that shifting economic circumstances affect different households. We don’t set our policy based on what is happening to one subset of households or to the price of any one good or service.

Because inflation was very high last year, interest rates had to rise a lot. That’s why we acted forcefully and brought them up quickly. Inflation has come down, but it is still too high. And that tends to mean that real interest rates need to remain high.

We are seeing signs that monetary policy is working. Both inflation and inflation expectations have come down, and excess demand in the economy is easing. And our past policy actions will continue to have an effect as they work their way through the economy.

However, in our most recent monetary policy decision, we also expressed concern about the persistence of underlying inflation. We will continue to evaluate whether the evolution of excess demand, inflation expectations, wage growth and corporate price-setting behaviour are consistent with achieving the 2% inflation target. We are prepared to raise the policy interest rate further if needed.