Bank of Canada Says Economic Slack Not Yet Absorbed, But 'Getting Closer'

The Bank of Canada will not raise its benchmark interest rate until the slack in the country's economy is absorbed, which has not yet happened but is getting closer, Governor Tiff Macklem said in a newspaper opinion piece on Monday, Reuters reported. Macklem also noted that while inflation risks have increased - driven by pandemic-induced demand shifts, supply disruptions and higher energy prices - the central bank continues to view the recent dynamics as transitory. "For the policy interest rate, our forward guidance has been clear that we will not raise interest rates until economic slack is absorbed. We are not there yet, but we are getting closer," Macklem wrote in an op-ed for the Financial Times newspaper. He added that the central bank's policy framework - a flexible inflation target focused on the 2% midpoint of a 1-3% control range - means Canadians can be confident that inflation will be kept under control, while supporting a full recovery. "What our resolve does mean is that if we end up being wrong about the persistence of inflationary pressures and how much slack remains in the economy, we will adjust. Our framework enables us to do just that," Macklem said. Read more.