BoC’s Macklem reiterates that rates need to rise further. But by how much?

Bank of Canada Governor Tiff Macklem reiterated the need for further interest rate increases due to high inflation and an economy in excess demand. The bank is attempting to balance the risks of under- and over-tightening. Macklem acknowledged that higher rates are affecting growth, particularly the parts most sensitive to interest rates, such as housing and spending on big-ticket items. However, Macklem stated that the effects of higher rates would take time to spread through the economy. The Bank of Canada has raised its overnight target rate by 350 basis points so far this year and needs to rise further, though how much will depend on monetary policy's impact on demand, supply challenges, and inflation expectations. Many bank economists expect a 50-bps increase in December, which would bring the Bank’s overnight target rate to 4.25%. However, some suggest that the latest data is a sign of some light at the end of the tunnel, with underlying inflationary pressures softening, and call for only a 25bps hike in December.