The Bank of Canada is defending its decision to raise the prime lending rate this week by three-quarters of a percentage point.
It now sits at 3.25 percent.
Carolyn Rogers is the deputy governor and says the idea is to bring inflation down to their two percent target.
“There’s a lot of risks … we’ve said that from the beginning,” Rogers told an audience in Calgary Thursday morning.
“This is a delicate balance. The economy is very strong. There is a lot of excess demand. Unemployment is at a record low level, so we think there is room to cool demand and keep the economy in a positive state of growth. Is it tricky? Absolutely … it’s absolutely tricky.”
Rogers adds they are also guarding against so-called entrenched inflation.
“The scenario we’re worried about … is when businesses and consumers start to look at the current rate of inflation and they make the assumption that it’s here to stay in the long term, and they start making decisions with that assumption embedded.”
The inflation rate was 7.6 percent in July.
Rogers says it may take up to two years for the Bank of Canada’s strategy to increase interest rates to work and slow inflation.
