Bank of Canada Governor Tiff Macklem said that uncertainty in financial markets will not derail his plans to raise interest rates, justifying this by saying that high inflation remains the "direct" threat to the global economy.

Macklem said, speaking to reporters yesterday, Friday, after the annual meetings of the International Monetary Fund and the World Bank Group in Washington, that his discussions there reinforced central banks' commitment "to maintaining market stability and continuing to focus on price stability."

Macklem said: "There was a broad consensus that inflation still represents the most pressing threat to current and future prosperity," adding that "there was concern that the longer inflation remains high, the greater the risk of sustained high inflation."

These positions also reflect the Bank of Canada's discomfort with high price pressures and its commitment to continue raising borrowing costs alongside its global counterparts, even amid financial volatility partly caused by the collapse in UK markets.

Macklem said, "There has been a significant tightening in global financial conditions."

Explaining that "to a large extent this was reasonably orderly. This tightening is intentional; it is necessary to control inflation."

Describing the prevailing mood at the meetings as representing "concern" but with "resolve."

Macklem also pointed to increased uncertainty caused by unresolved supply chain issues, energy price volatility, and recent liquidity problems.

Macklem said: "There is also concern about the potential unintended consequences of the needed tightening in financial conditions," citing disruptions in metals, energy, and pension markets in the UK.

However, he agrees with the IMF’s recent assessment of the risks faced by monetary policy.

It is worth noting that earlier this week, the IMF said that the consequences of rising inflation caused by interest rate tightening are a bigger concern than over-tightening borrowing costs.

The Bank of Canada is preparing to move ahead with another interest rate hike of at least 50 basis points on October 26.

The benchmark rate currently stands at 3.25 percent, three percentage points higher than the emergency pandemic low that persisted until March.

In the current context, inflation is not only high but far from the 2 percent target.

Therefore, given this reality, there is more concern about the upside risks to inflation than fears of downside risks."