The Bank of Canada building is pictured in Ottawa on September 6, 2011. File photo by THE CANADIAN PRESS

The Bank of Canada building is pictured in Ottawa on September 6, 2011. File photo by THE CANADIAN PRESS

Bank of Canada cautious of future rate hikes

The Bank of Canada remains cautious on future rate hikes due to low- inflation risk

The Bank of Canada remains cautious about future rate hikes as it measures the risk posed by low inflation that continues to fall short of the central bank’s two per cent target, senior deputy governor Carolyn Wilkins said Wednesday.

“Just three weeks ago, the bank decided to leave the policy rate unchanged. We said at the time that while less monetary policy stimulus will likely be required over time, governing council will be cautious in making future adjustments to the policy rate,” Wilkins said in remarks made in New York.

“One of the motivations for caution is that inflation has been in the lower end of the inflation target bands of one to three per cent for quite some time.”

Inflation in Canada slowed over the first half of this year and remained in the lower half of the Bank of Canada’s target range even as the economy grew quickly.

Caution, however, has its limits in times of uncertainty, Wilkins added, including those related to monetary policy and financial stability.

“Whether it is about how aggressive or how cautious policy should be — getting the dosage right demands sound judgment about complex trade-offs,” she said.

“And, like many businesses and households, central banks have established techniques to reduce, where possible, the level of uncertainty they experience.”

Speaking before the Money Marketeers of New York University, Wilkins said the central bank is particularly focused on data that indicate how wages and potential output are progressing, as well as the effects of the two interest rate increases made over the summer. The bank is also following NAFTA negotiations closely.

While higher household debt has likely heightened the sensitivity of spending to interest rate increases, Wilkins said it is difficult at this time to know by how much. There is also uncertainty about the interaction of interest rate increases with the recent tightening of macroprudential rules.

To understand how the bank factors uncertainty into its policy decisions, Wilkins paralleled a scenario involving business people considering large capital expenditures who have the option value of waiting until they are more sure of the returns.

“As with investment, fixed costs of changing policy direction may explain a central bank’s aversion to reversals and motivate a wait-and-see approach to policy,” she said.

That said, she added, it’s unclear how costly policy reversals are for the real economy.

“It is possible that the perceived costs are self-reinforcing because reversals are so rare that they are viewed as policy errors when they do occur, rather than as a sensible reaction to new information.”

The Canadian Press

Like us on Facebook and follow us on Twitter.

Just Posted

Shoes and toys were placed by the altar at the Circle of Indigenous Nations of Castlegar Indigenous Peoples Day gathering on Monday. Photo: Betsy Kline
Castlegar Indigenous Peoples Day gathering focuses on remembering

Occasion was more somber than previous years

Manager Cora Muellner (left) and employee Rachel Ronson at Buddy’s Place in Nelson. Muellner is among local cannabis retailers welcoming changes to provincial regulations. Photo: Tyler Harper
Nelson cannabis retailers welcome provincial changes to delivery, hiring options

As of July 15, private retailers can deliver their products to your door

Waneta Manor is located on Laburnum Drive in Trail. Photo: Sheri Regnier
New elevator coming to Trail manor this summer, says head manager

The elevator in Waneta Manor has been out of commission since February

Greater Trail barrel racer Hunter Weishaupt will race for a coveted spot in the Calgary Stampede
West Kootenay barrel racer takes run at Stampede

Hunter Weishaupt is inviting sponsors to get on board in her quest to compete in Calgary Stampede

Refusals to wear masks had Trail police called to two separate scenes on Saturday. Photo: Waldemar Brandt on Unsplash
Trail police called to mask confrontations

The Province of BC has masks being mandatory indoors

A person stands in a tower on the perimeter of the Number 3 Detention Center in Dabancheng in western China’s Xinjiang Uyghur Autonomous Region on April 23, 2021. Human rights groups and Western nations led by the United States, Britain and Germany accused China of massive crimes against the Uyghur minority and demanded unimpeded access for U.N. experts at a virtual meeting on Wednesday, May 12, 2021 denounced by China as “politically motivated” and based on “lies.” THE CANADIAN PRESS/AP-Mark Schiefelbein
VIDEO: Trudeau demands truth from China about Uyghurs

PM says Canada has admitted broken Indigenous relationship, unlike China on Uyghurs

CELEBRATING INDIGENOUS PEOPLES DAY
Council members and witnesses from the Hupacasath First Nation, left, and Tseshaht First Nation, right, prepare to raise their respective flags in front of Port Alberni City Hall on Monday, June 21, 2021. The flags will permanently fly as part of the city’s reconciliation work. See more coverage from the flag raising ceremony on page A5. (SUSAN QUINN/ Alberni Valley News)
Vancouver Island First Nations flags to fly permanently at city hall

Addition of flags are one Port Alberni response to reconciliation

Kelowna Mayor Colin Basran, middle right, participates in a ribbon-cutting ceremony in honour of the launch of Kelowna’s plasma donor centre at Orchard Plaza Mall on June 22. From left to right: Canadian Blood Services’ business development manager Janna Pantella, Canadian Blood Services’ operational excellence manager Tyler Burke, Kelowna Mayor Colin Basran and Canadian Blood Services’ centre manager Janine Johns. (Aaron Hemens/Capital News)
B.C.’s first dedicated plasma donor centre opens in Kelowna

The Kelowna location is the third dedicated plasma donor to open in Canada

Children walk with their parents to Sherwood Park Elementary in North Vancouver for the first day back to school on Sept. 10, 2020. THE CANADIAN PRESS/Jonathan Hayward
Study reassures parents, teachers that COVID-19 infrequently shared at school

Federally funded study in Vancouver finds risk in the classroom and in the community identical

Conservative MP Kevin Waugh rises during Question Period in the House of Commons Tuesday April 13, 2021 in Ottawa. THE CANADIAN PRESS/Adrian Wyld
Single-game sports betting about to become legal in Canada

Senate passes bill to take sports gambling away from overseas agencies

Point Roberts is part of the mainland United States but not physically connected to it, to reach the community by land one must pass through Canada. THE CANADIAN PRESS/Darryl Dyck
Closed Canadian border leaves Point Roberts’ only grocery store on verge of closure

‘We’re Americans but we’re not attached to America. It’s easy to forget we’re here,’ says owner Ali Hayton

Robin Sanford and her fiance Simon Park were married in an impromptu ceremony at Abbotsford Regional Hospital on June 16. (Submitted photo)
Mom dies day after witnessing daughter’s hospital wedding in Abbotsford

Nurses help arrange impromptu ceremony in 3 hours for bride and groom

B.C. Finance Minister Selina Robinson with Premier John Horgan after the budget speech Tuesday, April 20, 2021. THE CANADIAN PRESS/Chad Hipolito
B.C. home owner grant won’t be altered, despite expert advice

Tax break for residences worth up to $1.6 million too popular

B.C. conservation officer Sgt. Todd Hunter said a black bear is believed to have killed local livestock. (THE NEWS/files)
Black bear believed to have killed miniature donkey in Maple Ridge

Trap set for predator that has been killing livestock

Most Read