Bank of Canada ready to raise interest rates “if needed” to bring inflation under control, Governor Tiff Macklem said on Wednesday, doubling the message that Canadian households and businesses need to prepare for higher borrowing costs next year. . Speaking to the Banking, Commerce and Commerce Committee of the Senate, Mr. Macklem said the central bank should raise interest rates relatively quickly to cool the overheating of the Canadian economy. At the same time, he acknowledged that his team would be on the right track as it seeks to reduce demand in the economy without causing a recession. “If you boil it, the economy is overheating, it is creating domestic inflationary pressure,” McClelman said in his second parliamentary appearance this week. He spoke to the House Finance Committee on Monday. “We need to reduce growth to reduce inflation. We do not want the economy to become too cold, but we do not want it to overheat and create inflation. “So yes, it will be sensitive,” he said. Consecutive appearances before Parliament come as the central bank moves through the fastest monetary tightening cycle in decades in a bid to tackle a three-decade high of 6.7% in March. It has raised its key interest rate twice in the last two months, including an excessive move of 50 basis points in mid-April, bringing the key interest rate to 1 percent. Mr Macklem reiterated on Wednesday that the bank was likely to consider raising interest rates by 50 basis points for its next meeting on June 1. It usually moves in quarterly increments. The bank’s campaign to normalize borrowing costs after two years of extremely accommodative monetary policy still has a long way to go. Mr Macklem has said several times in recent weeks that the bank intends to raise the overnight interest rate between 2 and 3 percent relatively quickly. How fast and how high interest rates move will ultimately depend on how the economy reacts. The big challenge for the central bank is to cool the Canadian economy enough to align demand with domestic supply without causing a recession. Mr Macklem acknowledged the risk, but said the bank forecasts relatively strong growth of 4.2 per cent this year and 3.2 per cent next year. “I have no doubt, things will not go exactly as we expected, they will never go. “But there is enough room for this amount of steady growth. Even if growth was a little weaker, it is far from negative,” he said. Borrowing costs for Canadian households have already started to move higher, with floating rate mortgages moving in line with the bank’s policy rate and fixed rate mortgages – which are monitored by government bonds – moving higher as bonds move higher. have started pricing in a more aggressive course of interest rate hikes by the central bank. The rising level of household debt in Canada could limit how aggressive the bank can be in raising borrowing costs. Canadian households committed another $ 187.5 billion in housing debt last year and $ 118.9 billion in 2020, well above pre-pandemic levels. This brought the ratio of household debt to disposable income to a record high by the end of 2021. Royal Bank of Canada economists estimate that if the Bank of Canada’s reference rate returns to 2 percent, the average Canadian household debt payment will increase by about $ 2,000 next year. Mr Macklem said he was optimistic that inflation would start to decline later this year as global commodity prices plummet and higher interest rates begin to cool the domestic economy. However, he acknowledged that the prospects for inflation remained unclear. “Where is the war? [in Ukraine] is he going to go? How will COVID evolve in China? “These are fundamental uncertainties,” he said. Your time is precious. Deliver the Top Business Headlines newsletter to your inbox in the morning or evening. Register today.
