Bank of Canada Deputy Signals That Interest Rate Increases Are Now On Hold

Bank of Canada Senior Deputy Governor Carolyn Wilkins has given a detailed explanation about why the central bank is now more cautious about future interest rate increases.

Speaking in New York, Wilkins said the Bank of Canada puts a greater emphasis on downside risks when inflation is low, as it has been in Canada for an extended period of time. She also said the central bank remains unsure how heavily indebted Canadian consumers will react to higher interest rates and if they will stop spending as a result.

"During periods of uncertainty like today, a cautious approach may be prudent," Wilkins said, adding "Caution has its limits, because there are complex trade-offs involved, including those related to financial stability."

Speaking specifically of inflation, Wilkins said "One of the motivations for caution is that inflation has been in the lower end of the inflation target bands of 1% to 3% for quite some time,” she said, referring to last month’s decision to hold the benchmark interest rate at 1%.

Wilkins also discussed the Canadian housing market in her remarks, saying "There’s uncertainty about the interaction between interest rate increases with recent tightening measures in the residential mortgage market."