BOC’s Kozicki: Pace and Magnitude of Rate Hikes, Start of QT to be Discussed April

25 March 2022

By David Barwick – FRANKFURT (Econostream) – Bank of Canada Deputy Governor Sharon Kozicki on Friday said that Canadian monetary authorities would discuss the specifics of rate hikes and of quantitative tightening at their next meeting.

In a speech at the San Francisco Federal Reserve Bank’s Macroeconomic and Monetary Policy Conference, Kozicki said, ‘I expect the pace and magnitude of interest rate increases and the start of QT to be active parts of our deliberations at our next decision in April.’

‘The reasons are straightforward: inflation in Canada is too high, labour markets are tight and there is considerable momentum in demand’, she said, adding that low-income households were particularly impacted by price rises.

Russia’s war of aggression against Ukraine is contributing to price pressures, she said, so that short-term inflation would be higher than anticipated by the last BOC forecasts, released in January.

‘A key concern for us is the broadening of price pressures—around two-thirds of the components in the consumer price index are now exhibiting inflation above 3%’, she said. ‘Persistently elevated inflation increases the risk that longer-run inflation expectations could drift upward.’

Getting inflation back to 2% is the central bank’s ‘primary focus and unwavering commitment’, she said. ‘We have taken action and will continue to do so to return inflation to target, and we are prepared to act forcefully.’

Although rate hikes would immediately affect only those now buying a home as opposed to those who have already acquired a residence, there are some ‘worrisome’ developments pertaining to households, she said.

In particular, household indebtedness, now above levels seen before the pandemic, ‘remains an important domestic vulnerability’, she said. Heavily mortgaged households could be forced by higher mortgage rates to limit spending, which could have implications at the level of the macroeconomy, she said.

‘Adding it all up, though, we see that households on average appear to be in better financial shape now than at the start of our 2017–18 tightening cycle’, she said. ‘And as we proceed with policy tightening, our rich data capabilities will continue to pay dividends. That’s because they give us a more refined lens into how households are responding to our monetary policy.’