Speaking a day after the Bank of Canada decided to raise our policy interest rate, Deputy Governor Sharon Kozicki discusses the current state of the economy. She also talks about how we are improving our transparency with Canadians.
Policy rate increased by 50 basis points
We decided to increase our policy interest rate to 4¼%. We are also continuing quantitative tightening.
Where we see the economy today
While inflation has slowed to 6.9% from its peak of 8.1% in June, it is still too high. The prices of many goods and services Canadians buy regularly—like groceries—continue to see large increases.
Since the COVID‑19 pandemic hit, we have been expanding our use of surveys and high-frequency data to get a better view of developing trends. Taken together, all that data are helping paint a picture of how our monetary policy actions are affecting the economy.
- While overall growth slowed only slightly in the third quarter, consumption of goods decreased substantially.
- Demand is easing significantly in areas that are sensitive to interest rates—like housing resales. We’re also seeing a slowdown in demand for some hard-to-distance services.
Despite signs that tighter monetary policy is working, our economy is still in excess demand. Overheated demand for some services such as hotels and restaurants is continuing to drive prices higher. This said, early indications show that short-term momentum in inflation is shifting, with three-month rates of change coming down.
We are watching carefully to make sure that high inflation expectations don’t become entrenched among consumers and businesses. The 1970s taught us that if this happens, the economy doesn’t work well and the cost of restoring price stability is a lot higher.
Looking ahead, we will be considering whether the policy interest rate needs to rise further to bring supply and demand back into balance and return inflation to target. We are also continuing to assess how tighter monetary policy is working to slow demand, how supply challenges are resolving, and how inflation and inflation expectations are responding.
We are resolute in our commitment to achieving the 2% inflation target and restoring price stability for Canadians.”
Continuing to increase our transparency
Since we introduced inflation targeting in the 1990s, we have taken concrete steps to continue earning the trust of Canadians. A big part of this is being more open about the work we do every day to improve their economic well-being.
Last fall, we volunteered to participate in a pilot review of our broader transparency practices under the International Monetary Fund’s new Central Bank Transparency Code. We did this to better understand what we’re doing right and where we could improve.
The review concluded that we have a high level of transparency overall and said our monetary policy framework was comprehensive, transparent and understandable. One of the recommendations for improvement was to publish a summary of deliberations after each of our policy decisions. We will begin doing this in January 2023.
This new summary will provide an additional window into the views that were shared during our deliberations and will shed light on the Governing Council’s consensus-building process.”