Bank of Canada of Governor Tiff Macklem acknowledged that a further tightening of financial conditions due to global banking stresses could alter the future path for domestic interest rates.
In a speech to the Toronto Region Board of Trade, Canada’s chief central banker reiterated Thursday that policymakers are prepared to hike again and noted that although global financial stability risks seem “contained,” a more severe flare-up would make achieving the 2 per cent inflation target “more complicated.”
The comments suggest recent financial system stress is likely to be weighed more carefully as the Bank of Canada sets monetary policy in coming months, especially if accompanied by a deteriorating global outlook. “If we start to see signs that inflation is likely to get stuck materially above our 2 per cent target, we are prepared to raise rates further”, he said in the speech, adding that the Bank remains focused on employment growth and wages, service inflation, corporate pricing behavior and inflation expectations.
First Republic Bank was seized by the U.S. government and sold to JPMorgan Chase earlier this week, which Macklem flagged in his discussion. The sale was preceded by the failure of Silicon Valley Bank and Signature Bank in the US, as well as the government-brokered takeover of Swiss giant Credit Suisse by rival UBS.
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