The Bank of Canada is still saying that its policy rate will need to rise from the current 1%, but there appears to have been a shift in its reasoning for maintaining the tightening bias. Given the lacklustre pace of economic growth, the Bank is less concerned that a shrinking output gap will drive inflation higher. Instead, the threat of higher rates now appears to be primarily intended as a warning to households, designed to persuade them to think twice about taking on even more debt.
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