Bank of Canada says higher rates are starting to work, frets over inflation risk

Reuters reported that the Governor of the Bank of Canada, Tiff Macklem, who was speaking to business leaders in Vancouver, said the tightening had "begun to work" but would take time to feed through the economy.

Going forward, the challenge is that raising rates too much would risk driving the economy "into an unnecessarily painful recession", he said. Not raising them enough would allow price increases to remain elevated and feed expectations for persistently high - or sticky - inflation.

"With inflation running well above target, this is the greater risk," Macklem said. "If high inflation sticks, much higher interest rates will be required to restore price stability, and the economy will have to slow even more sharply."

USD/CAD update

The Canadian Dollar is bid on the day and vs. the US Dollar, the currency is 0.1% higher at 1.3630. Meanwhile, Money markets see a roughly 40% chance that the central bank would hike by 25 basis points at its next policy decision on Jan. 25.