MNI BRIEF: BOC Remains Confident of 2H Growth, Mkts See Taper

Bank of Canada Governor Tiff Macklem said Thursday that markets appear to have a good handle on any future moves to taper bond purchases, and said he remains confident about solid economic growth through the rest of the year.

The economy shows good underlying momentum even after GDP shrank in the second quarter, though growth prospects have faded with some companies taking longer than expected to hire back workers, he said. "We continue to see a strong second half of the year," he said at a press conference following a speech about global capital controls.

Investors predict Macklem will hold a record low 0.25% policy rate at its Oct. 27 decision and many economists see a taper to CAD1 billion a week that would stabilize the size of the balance sheet. "We've tried to be pretty deliberate in our communications," he said when asked about tapering, and "the market hopefully can get a pretty good idea of where we're headed."

The Bank has said it won't raise interest rates until inflation stabilizes around its 2% target and the economy is back at full potential, conditions expected to be in place in the second half of next year. With some investors betting hot inflation could force him to act sooner, Macklem said most price pressures are linked to temporary forces specific to the pandemic.

"There are good reasons to believe that these price increases will be temporary," he told reporters. Speaking to his audience after the speech, he said inflation is still expected to top 3% through the rest of this year and some of the upward pressure has lasted longer than expected.

Medium to longer run price expectations "have remained very well anchored" and "wage growth to this point is fairly moderate," he said. "It does remain to be seen how persistent these things are but we will be looking at this very closely and looking for signs of broadening."