OTTAWA, March 9 (Reuters) - The Bank of Canada needs more evidence to gauge if interest rates are high enough to tame inflation, in part because the economies of major trading partners are doing better than forecast, senior deputy governor Carolyn Rogers said on Thursday.
She spoke a day after the central bank left its key overnight interest rate on hold at 4.50%, becoming the first major central bank to suspend its tightening campaign as inflation eases.
The BoC has said it will hold rates where they are as long as inflation comes down as it forecast in January, hitting 3% at about mid-year. The economic data published since then have painted a "mixed picture", she said.
"We'll still need more evidence to fully assess whether monetary policy is restrictive enough to return inflation to 2%," Rogers said in a speech in Winnipeg to the Manitoba Chambers of Commerce.
"If evidence accumulates suggesting inflation may not decline in line with our forecast, we're prepared to do more."
Money markets are fully pricing in another hike by September.
Although the January jobs report was much stronger than forecast, gross domestic product (GDP) stalled in the fourth quarter - coming in far weaker than the 1.3% annualized growth forecast by the BoC - and January inflation slowed to 5.9%.
While there has been a "clear momentum shift in goods prices ... services price inflation needs to cool further," she said.
The economic growth and inflation outlooks for both the United States and Europe are higher than the bank had expected in January.
"Since these are our main trading partners, this could point to some further inflationary pressure in Canada," she said.
Over the past year, the central bank had raised rates eight times in a row by a total of 425 basis points to tame inflation, which peaked at an annualized rate of 8.1% last year.
The BoC expects near-zero growth for the first three quarters of 2023.
The Canadian dollar CAD=, which weakened to a near five month low after the rate announcement, had recovered slightly on Thursday ahead of the release of the Rogers speech.
Money markets expect the BoC's policy rate to peak at about 4.75% this year, or roughly 90 basis points below the expected end point of the U.S. Federal Reserve.
"As global inflationary pressures continue to recede, each country will need to chart its own course to get back to price stability," she said.
(Additional reporting by Fergal Smith in Toronto)
((Reuters Ottawa bureau; david.ljunggren@tr.com))
Keywords: CANADA CENBANK/
