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Bank of Canada signals non-commissioned officers on track for march hike

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(Bloomberg) – A Bank of Canada aide may have signaled that the central bank is on track to raise interest rates in two weeks.

Responding to questions after a speech on Wednesday, Deputy Governor Tim Lane was asked about the potential timing of the central bank’s balance sheet reduction. The Bank of Canada would consider it once it starts raising interest rates, he said, then stopped short of saying policy changes would come in the next move on May 2. March.

“We will definitely consider looking at this process fairly… We will as soon as we start raising rates,” he said. “It’s highly likely that we’ll say something about that in a few weeks when we’re changing our, uh… When we’re actually at our next decision point.”

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The Bank of Canada is widely expected to begin a rate hike cycle at the next policy meeting. Markets are pricing in up to seven increases in borrowing costs over the next 12 months.

Paul Badertscher, a central bank spokesman, said by email that no policy decisions had been made by the bank’s board.

“The board follows a clear deliberative process for every policy decision,” Badertscher said. “Decisions are made at the end of board deliberations, and deliberations for the March 2 announcement have not yet taken place.”

In the speech, Lane said the central bank was “alert” to the possibility that inflation could turn out to be more rigid than expected, and that officials are ready to adjust policies if necessary.

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He underscored the importance of agility in decision-making, citing how the central bank adjusted policy during its pandemic response as inflation came in faster than expected. While the Bank of Canada forecasts consumer price gains to fade, Lane said policymakers are more concerned about the upside risks to their forecasts.

“While we now expect supply disruptions to ease and inflation to decline rapidly in the second half of this year, we are mindful of the risk that inflation could once again prove more persistent. “said Lane at the University of Calgary. “We will be nimble – and if necessary, forceful – in using our monetary policy tools to deal with any situation that arises, as we have done throughout these turbulent times.”

These remarks appear to be an attempt to assure Canadians and investors that despite their optimism that inflation will prove temporary, policymakers are prepared to act quickly if they are wrong. Statistics Canada reported earlier that inflation hit 5.1% in January, a three-decade high.

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