OTTAWA, Dec 15 (Reuters) - The Bank of Canada on Friday made clear that interest rates were not coming down any time soon, putting it on a divergent path from the U.S. Federal Reserve, which said this week that easing could be on the timetable.

The Canadian central bank raised rates by a quarter point in both June and July to a 22-year high and has left them on hold in the three policy-setting meetings since. Inflation slowed to 3.1% in October, down from a 2022 peak of more than 8%, but has remained above the bank's 2% target since March 2021.

"The Fed is going to do what they need to do. We're going to focus on what needs to be done here in Canada," Governor Tiff Macklem told a business audience in Toronto after a speech.

"We have not started having that discussion (about cutting rates), because it's too early to have that discussion. We're still discussing whether we raised interest rates enough and how long they need to stay where they are."

Money markets expect the bank to begin easing as soon as April and for rates to fall 125 basis points in 2024.0#BOCWATCH

U.S. central bank chief Jerome Powell on Wednesday said the historic tightening of monetary policy is likely over, with a discussion of cuts in borrowing costs coming into view.

The Bank of Canada had previously forecast inflation should hit 2% by end-2025 but Macklem - making his last public appearance of 2023 - told reporters it should be closer to target by the end of next year.

"Inflation is still too high. If we don't do enough ... ultimately, we're probably going to have to raise rates even further to get it down," he said. Earlier, in his speech, he had said future inflation declines were likely to be gradual.

Macklem also expressed increasing optimism it could bring inflation back down to target but said the next few quarters would be difficult as high interest rates restrict the economy.

"The 2% inflation target is now in sight. And while we're not there yet, the conditions increasingly appear to be in place to get us there," he said.

The European Central Bank this week said policy easing was not even brought up in a two-day meeting, and the Bank of England said rates would remain high for "an extended period".

"I expect 2024 to be a year of transition ... with the cost of living still increasing too quickly, and with growth subdued, the next two to three quarters will be difficult for many," said Macklem, adding the jobless rate was likely to rise further.

The central bank held its key overnight rate at 5% on Dec 6 and left the door open to another hike, saying it was still concerned about inflation while acknowledging an economic slowdown and a general easing of prices.

"Today's speech reinforces the building sense that the Bank is comfortable that policy rates are now tight enough to quell inflation," said Andrew Kelvin, chief Canada strategist at TD Securities.

https://www.reuters.com/markets/rates-bonds/bank-canada-diverges-fed-says-rates-not-coming-down-soon-2023-12-15/