The Bank of Canada could raise the key interest rate to 3.0%

% “,” text “:” We definitely think we should go higher in the 2-3% range “}}”>We definitely think we should head towards the top of the 2-3% range.Bank of Canada Deputy Governor Paul Beaudry said: Economic Zone. The bank rates the neutral interest rate between 2 and 3%. The current rate is at 1.5%, after rising 50 basis points on Wednesday.

To get there quickly, the central bank is not ruling out raising its key rate by 75 basis points in July. It’s possiblesays Paul Beaudry.

It’s not something we’ve decided to do, but we’ll look into it if necessary. There again, depends to some extent on developments in the economy. If we really see inflation keep going up, and if we keep seeing this hyper-elevation in the economy, we might think about that. […] We want all of these possibilities, so that people understand that these are possibilities that could happen, depending on economic developments in Canada.

The next Bank of Canada decision is scheduled for July 13th.

Grocery prices rose 9.7% in April, according to Statistics Canada. The federal agency says this is the largest increase since 1981.

Photo: gettyimages / istockphoto / Aleksandr_Vorobev

Mistakes were made

It also exceeded inflation Methodically In its forecasts over the past year, the Bank of Canada now admits that it made errors in its cost-of-living assessment. In his speech, Paul Baudry said that the Foundation will present A preliminary analysis of the errors we made in our inflation forecasts in July.

Of course we know we made mistakesPaul Boudry said, Economic Zone. Really, it’s a very difficult time to predict inflation. The price of oil, the prices of some foods and the prices of commodities control a large part of the inflation. These are all very difficult things to predict. […] We are already trying to learn from our mistakes.

He identified three reasons for the poor assessment of the Bank of Canada. First, the Bank expected supply disruptions, which are of external origin, to be temporary, as is often the case. Then, for much of 2021, the economy was running slower than it could possibly be. Then the bank worried about the impact of a premature tightening About people who have lost their jobs during the pandemic. With sanitary and economic rules partially still in force, it was difficult, according to Paul Baudry, to make a change in monetary policy.

The risk we were taking was that high inflation would end up affecting expectations and starting to take hold if it continued for longer than expected. It seemed reasonable to take this risk at the time, given that there was excess capacity in the economy and it was thought that the supply-side sources of high inflation were likely to be temporary. »

Quote from Paul Baudry, Deputy Governor, Bank of Canada

Today, demand is now considered excess. And supply is still being disrupted by problems in supply chains, due to war and restrictions as well. As a result, there is now a greater risk that inflation expectations will become unchecked and that high inflation will take hold. Here the bank says it must act decisively. We will not let this high inflation take rootPaul Pewdry said.

Inflation takes root when it feeds on itself. Prices rise because other prices are also rising, and because of the higher cost of labour. This cost rises because workers want to be able to afford higher prices for goods and services. There is no need for persistent external forces, such as supply disruptions or stabilization of demand, to fuel this type of inflation. It does go up almost on its own, in large part because people expect it to stay high or keep going.

Paul Baudry recalls that the Bank of Canada intervened extensively to support the economy during the pandemic by buying government bonds. The bank’s balance sheet amounted to $575 billion in 2021. It is now $465 billion, and the corporation expects it to reach about $280 billion by the end of 2023.

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