The Bank of Canada likely would have raised interest rates sooner if it had known a year ago all the things it now knows, Governor Tiff Macklem said in a newspaper interview published on Thursday, the day after a shock 100-basis-point rate increase.
“If we had known everything a year ago that we know today, yes, we probably would have started raising interest rates a little bit earlier,” Macklem told the Financial Post newspaper. “But we didn’t know. A year ago, there was still a lot of excess supply in the economy.”
Canada’s central bank has hiked four times so far this year, lifting its policy rate to 2.5% from a record low 0.25%, in its fastest tightening campaign in decades, as it tries to contain inflation that is at a near 40-year high.
Its 100-bp increase on Wednesday was the largest in one go since 1998 and the heftiest increase of any advanced economy in the current cycle.
Canada’s inflation rate hit 7.7% in May, its highest since January 1983. Macklem told the Financial Post price gains will probably “go up a little further before it starts coming down,” adding the decline will start off “pretty slowly”.
Macklem reiterated the Bank of Canada wants to front-load its tightening to avoid a recession.
“What that argues for is getting our policy rate quickly up to at least the top, or somewhat above the top, of this 2% to 3% neutral range,” he said.