Bank of Canada must stay the course to combat risk of sticky inflation, Governor Tiff Macklem says

The Bank of Canada is “staying the course” to combat the risk of inflation getting stuck above 2 per cent, Governor Tiff Macklem said Thursday, in a mildly hawkish speech that suggested the central bank intends to keep interest rates high even as inflation declines quickly.

The annual rate of inflation has declined steadily since last summer, and the central bank expects it to return to 3 per cent in the coming months. Still, Mr. Macklem and his team remain concerned that getting all the way back to the bank’s 2 per cent target could prove a long and difficult process. The bank’s governing council considered raising its policy rate at its most recent rate decision on April 12, but decided to stand pat. Interest rate increases work with a considerable lag, and Canada’s central bankers have said they want to wait to see if interest rates are now high enough to bring inflation down over time.

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