A Bank of Canada official said policymakers aim to keep inflation near their 2% target, and pushed back on the idea that officials should slow price gains further or cause deflation.Deputy Governor Rhys Mendes said it was reasonable to expect further cuts to interest rates if inflation and the economy continue to evolve as forecast but said that the timing and pace of further cuts would be guided by incoming data.He offered little new guidance on the near-term path for borrowing costs, reiterating that policymakers “no longer need interest rates to be as restrictive as they were.”Mendes said policymakers would be “looking closely” at third-quarter gross domestic product data released later this week, as well as November employment data. Traders in overnight swaps put the odds of another 50 basis point cut at about one third.In his first speech as deputy governor, Mendes also justified the bank’s aggressive interest rate-hiking cycle, saying the increase in borrowing costs was necessary to cool excess demand during a supply shock.The central bank’s campaign was successful in part due to the primacy of the 2% inflation target, Mendes said, and longer term inflation expectations didn’t drift too much higher during the pandemic and subsequent run up in prices.“The presence of excess demand in the economy amplified the inflationary effects of supply shocks. By eliminating excess demand, we were able to stop that.”“We believe inflation will once again fade into the background as it settles back at 2%,” he said.In prepared remarks, Mendes also explained that costs of deflation or a sustained period of below-target inflation would be harmful. The central bank isn’t aiming to bring yearly price pressures significantly below the 2% target, he said.“It would take a pretty big hit to the economy to get a meaningfully lower level of prices,” and the trade-off would “like leave most people feeling worse off,” Mendes said.The central bank cut borrowing costs by half a percentage point in October, bringing the benchmark overnight rate to 3.75% after starting to lower interest rates from 5% in June.“We’ve restored low inflation. We now need to ensure it stabilizes near the 2% target. We need to stick the landing,” Mendes said.Mendes pointed out that while inflation is back to normal, “it may not feel that way for many people.” His comments echoed remarks on Monday by Finance Minister Chrystia Freeland, who said Canada may be in a “vibecession” as positive macroeconomic data isn’t changing Canadians’ gloomy mindsets.Freeland’s government has tried to counter this national mood, and turn around its sinking poll numbers, by announcing a temporary halt to the federal sales tax on some items starting Dec. 14 and promising to send C$250 checks to nearly 19mn Canadians in the spring.The Bank of Canada, meantime, has sought to defend its actions during the pandemic and the ensuing period of high prices to Canadians who had previously paid little attention to inflation or monetary policy. The central bank plans to release a review of its response to Covid-19 in the new year.Mendes’s speech appears aimed at those Canadians, particularly those questioning whether the central bank’s rate hikes were really necessary given the supply shocks that helped drive up inflation, and those now wondering if a period of deflation might give them some desperately needed affordability relief.