According to the C.D. Howe Institute, the Bank of Canada should start raising interest rates.
In Overnight Moves: The Bank of Canada Should Start to Raise Interest Rates Now, leading monetary economist Michael Parkin warns that delayed action poses risks and the prospect of “ugly policy choices” ahead.
"If more 'no-change' decisions are made by the Bank of Canada regarding its interest rate policy, inflation expectations might begin to slip loose of their 2% anchor," said Parkin.
“Further, with the Fed continuing to hold a near zero rate, the U.S. dollar is likely to continue its slide. If the Canadian dollar moves with the greenback, because the Bank of Canada keeps its interest rate close to the U.S. federal funds rate, the high inflation rates of energy and other commodity prices, which currently are seen as temporary, might start to look permanent.”
The report concludes that a return to above-target inflation can be addressed only with above-normal interest rates.
Jennifer Harrison