inflation run hotter for a longer period, probably into 2023, before raise borrowing costs to ensure a full economic recovery. Since late March last year, the central banks has maintained the benchmark overnight lending rate at 0.25 per cent.
“They want to go later. They want to ensure the self-sustaining recovery takes shape and that the output gap closes… They will go on or just after the output gap closes,” Millan Mulraine, chief economist of the Ontario Teachers’ Pension Plan, said during a panel discussion at the Bloomberg Canadian Fixed Income Conference.
Nevertheless, he pointed out that policy makers continue to underestimate the ongoing price pressures, and could see inflation could shoot well beyond the BoC’s target, which would ultimately call for more aggressive increases interest rates.
These views were echoed by Stefane Marion, chief economist at National Bank Financial in Montreal, who noted that while it is correct to expect the output gap to close in the second half of 2022, “it could very much come sooner, depending on how the global economy and the global supply chain evolves.”
