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While the world is interconnected, Rogers said the Bank of Canada needs to do what’s best for Canada, while other central banks do what’s best for their countries.

“While we’re always thinking globally, we have to act locally,� she said. “We must tailor our policy to Canadian circumstances.�

Her comments come one day after the central bank held its key interest rate steady for the first time in a year, diverging from the U.S. Federal Reserve, which has signalled more rate hikes are to come.

At its Jan. 25 interest rate decision, the Bank of Canada said it was planning to move to the sidelines, appearing hopeful its rate hikes to date may be sufficient to quash inflation.

In her speech, the senior deputy governor parsed out global and domestic circumstances that caused runaway inflation, noting that the Bank of Canada’s rate hikes are geared toward addressing homegrown inflation.

Rogers said what started off as a run-up in prices caused by high commodity prices, a surge in global demand for goods and disrupted supply chains then became a domestic phenomenon as the Canadian economy got overheated.

And while Canada’s experience with inflation has a lot in common with other countries, Rogers said “we can also see some differences.�

Rogers pointed out some specific differences, noting Canada’s inflation rate is the second-lowest in the G7, economic growth has been the strongest since interest rates began to rise, and employment growth has been strong.

At the same time productivity growth is one of the lowest, and Canadian households are some of the most indebted in the G7.

“As global inflationary pressures continue to recede, each country will need to chart its own course to get back to price stability,� Rogers said.

Diverging monetary policy between Canada and the U.S. could weaken the Canadian dollar, making imports more expensive.

In a question-and-answer period after her speech, Rogers said there's "no question" that what happens in the U.S. economy has implications for Canada.

"It is true if our dollar depreciates ... that means imports coming into the country are more expensive. That can put upward pressure on inflation," Rogers said.

"If that happens, that will have to get built into our forecast."

Later in a news conference, Rogers said there are some differences between the U.S. and Canadian economies that have implications for each country's monetary policy.

"We are seeing inflationary pressures come down a little more than they're seeing in the U.S.," she said.

Though the central bank expects to hold its interest rate steady, it has made it clear that the pause is conditional on the economic performance and inflation cooling as expected.

On Thursday, Rogers made that point once again.

“If economic developments unfold as we projected and inflation comes down as quickly as we forecast ... then we shouldn’t need to raise rates further,� Rogers said.

“But if evidence accumulates suggesting inflation may not decline in line with our forecast, we’re prepared to do more.�

In her speech, Rogers also discussed Wednesday’s rate decision, noting that the governing council found a “mixed picture� when evaluating recent economic data.

“Overall, though, things are unfolding broadly in line with our outlook,� she said.

Economic growth has slowed noticeably, with the Canadian economy posting no growth in the fourth quarter.

However, Rogers said the labour market is still “very tight.�

The Bank of Canada has stressed lately that wage growth, which has been hovering between four to five per cent, isn’t compatible with the central bank’s two per cent inflation target.

The central bank says the economy would have to see productivity growth to justify that rate of wage growth.

“Labour productivity fell for a third straight quarter, so productivity isn’t trending in the right direction so far,� Rogers said.

This report by °µÍø½ûÇø was first published March 9, 2023.