Julie Gordon, Steve Scherer

OTTAWA (Reuters) -The Bank of Canada will likely consider another half-percentage-point rate increase in its next policy decision, as “too-high” inflation potentially nears its peak, Governor Tiff Macklem said on Monday, though he did not rule out an even larger move.

Canadian’s central bank made a rare decision to raise its key policy rate by 50bps (bps) earlier in the month. This move lifted it from 0.5% to 1.0%. Next policy move is scheduled for June 1.

“I anticipate that we will consider a 50 basis-point increase. There are other options, which I don’t think we will rule out. Macklem stated that anything greater than 50 basis points is very uncommon, as he testified before the House of Commons finance committee.

Since 1998, rates have not been raised by the central bank more than 50 bps. Macklem stated to reporters late last week that he was open to increasing interest rates by 50 bps or more in an attempt at combating inflation.

Macklem’s comments on Monday signal a half-percentage-point move is likely the “base case,” said Royce Mendes, head of macro strategy at Desjardins Group. The final magnitude of the rise will depend on the outcome of future GDP, job and inflation data, he said.

Mendes indicated that there is a possibility that any of these could be evidence that Bank of Canada must raise rates quickly to more neutral levels.

Macklem also stated that inflation was too high and will continue to rise for longer than expected. To slow down the increase in prices, Macklem repeated his assertion that the central bank would act “forcefully”, if needed.

Macklem was asked whether March’s 6.7% Inflation Print in March was the peak.

There is a lot volatility in inflation. It could rise a bit higher and it might reach the peak. “I do believe we are near the peak,” said he.

Macklem said, “Whatever the peak is, 6.7% is excessive.”

High inflation is plaguing countries all over the world, due to surging demand and supply chains bottlenecks. Russia’s incursion in Ukraine has led to an increase in oil prices and other commodities.

Macklem stated that inflation will fall as these factors diminish. However, expectations must remain stable. Macklem also stated that the level of interest rates will be determined by how Canada’s economy reacts to tightening monetary policies and changes in the inflation outlook.

It is crucial to keep in mind that the inflation target and not the interest rate target are our goals. He explained that this means there is no predetermined destination for policy interest rates.

Canadian dollars traded 0.5% less at 1.2777 against the greenback (or 78.27 U.S. Cents), its lowest level in almost six weeks.