OTTAWA, Feb 6 (Reuters) - Bank of Canada (BoC) Governor Tiff Macklem said on Tuesday more time was needed for monetary policy to ease price pressures while he warned that the biggest driver of prices - shelter costs - cannot be tamed by borrowing costs.
"We can see monetary policy is working to bring down inflation... and we need to give monetary policy more time to ease the remaining price pressures," he said during a speech at the Montreal Council of Foreign Relations.
Canada's central bank has increased its key overnight rate 10 times in 17 months to a 22-year high of 5%. It has held the rate constant for its last four meetings. The next policy announcement is in March.
While this has helped ease inflation from a high of 8.1% in June 2022 to 3.4% in December, the path to its 2% target has been slow.
Canada's acute housing shortfall has pushed up the costs of buying or renting a property in Canada, and Macklem said shelter costs were now the biggest contributor to above-target inflation.
"Housing affordability is a significant problem in Canada - but not one that can be fixed by raising or lowering interest rates," he said.
In testimony to the House of Commons last week, Macklem urged all levels of government to resolve a "chronic structural shortage" in housing supply.
On Tuesday, he said that years of supply shortages and a recent surge in population growth through immigration "means housing prices have declined only modestly" despite the high interest rates.
Macklem also pointed out that the ongoing tensions in the Middle East and the Russia-Ukraine war could cause volatility in oil and transportation costs that could impact inflation in Canada.
"The path back to 2% inflation is likely to be slow and risks remain," he added.
Reporting by Promit Mukherjee, editing by Steve Scherer
