Bank of Canada says any further rate decisions to depend on economic data

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OTTAWA — The Bank of Canada will study the latest economic data to gauge whether or not to raise interest rates further, a deputy governor said on Thursday, adding it would still move forcefully if necessary.

The central bank on Wednesday hiked its benchmark overnight interest rate by half a percentage point to the highest level in almost 15 years and signaled its unprecedented tightening campaign was near an end.

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“We expect our decisions will be more data-dependent,” Deputy Governor Sharon Kozicki said in a speech in Montreal, adding the bank is still prepared to be “forceful” with rates if necessary. “We are moving from how much to raise interest rates to whether to raise interest rates.”

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The central bank has lifted rates at a record pace of 400 basis points in nine months to 4.25% – a level last seen in January 2008 – to fight inflation that is far above its target.

“With the labor market still tight and businesses still finding it easy to raise their prices, Governing Council agreed that the economy still needs a more sustained moderation of demand,” Kozicki said.

On Wednesday, the bank cited still-strong growth and tight labor markets but eliminated the forward guidance it has used since it began cranking rates higher in March, dropping language that said they would have to rise further.

Inflation, which clocked in at 6.9% in October, “remains too high” at more than three times the bank’s 2% target, Kozicki said. But three-month rates of core inflation have declined to about 3.5%, Kozicki said, an indication “that momentum in inflation is easing.”

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Deliberations ahead of Wednesday’s rate hike centered on how supply challenges are resolving, how higher rates are slowing demand, and how inflation and inflation expectations are evolving, Kozicki said.

While third-quarter growth remained strong, softening demand in interest-rate sensitive areas like housing activity are signs that tighter monetary policy is “working to rebalance supply and demand,” she said. The next policy-setting meeting will be on Jan. 25.

Kozicki reiterated that starting next year, the bank will release a “summary of deliberations” in an effort to provide more transparency.

The Canadian dollar was trading 0.5% higher at 1.3580 to the greenback, or 73.64 U.S. cents.

(Additional reporting by Fergal Smith in Toronto, Editing by Deepa Babington)