The Bank of Canada could raise interest rates to as much as 3.0%

%”,”text”:”C’est certain qu’on pense qu’il faut aller vers le haut de la fourchette de 2 à 3%”}}”>It is certain that we think we need to get closer to the upper 2-3% range.said Bank of Canada Deputy Governor Paul Beaudry economic zone. The bank estimates its neutral interest rate to be between 2% and 3%. The current interest rate stands at 1.5% after rising 50 basis points on Wednesday.

In order to get there quickly, the central bank is not ruling out a key interest rate hike of 75 basis points in July. It is possiblesays Paul Beaudry.

It’s not something we’ve decided to do, but we’ll consider it if the need arises. Here, too, it depends somewhat on the economic development. If we really see inflation continuing to rise, if we continue to see this economy overheating, then we might consider that. […] We want all of these opportunities to be there so that people understand that these are opportunities that can arise depending on how Canada’s economy develops.

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

According to Statistics Canada, food prices rose 9.7% in April. This is the largest increase since 1981, said the Federal Agency.

Photo: gettyimages/istockphoto/Aleksandr_Vorobev

Mistakes have been made

Exceeded as inflation systematic In its forecasts for the past year, the Bank of Canada now admits that it made mistakes in estimating the cost of living. In his speech, Paul Beaudry said that the institution will present a first analysis of the mistakes we made in our inflation forecasts in July.

Of course we acknowledge that we made mistakessaid Paul Beaudry economic zone. Really, it’s a very difficult time to predict inflation. Much of inflation is dominated by the price of oil, the price of certain foods, and commodity prices. These are all very difficult things to predict. […] We are already trying to learn from our mistakes.

He cites three reasons for the Bank of Canada’s poor rating. First, the bank expected supply disruptions, which are external in origin, to be temporary, as is so often the case. Then the economy ran slower than its potential capacity for much of 2021. Then the bank worried about the impact of a premature dressing about people who had lost their jobs during the pandemic. With health and economic rules still partially in place, Paul Beaudry said it was difficult to make a change in monetary policy.

The risk we managed was that high inflation would eventually affect expectations and take hold if it lasted longer than expected. At the time, it seemed prudent to take this risk given the overcapacity in the economy and the assumption that supply-side sources of high inflation were likely to be temporary. »

A quote from Paul Beaudry, Deputy Governor of the Bank of Canada

Today, the demand is now considered to be in excess. And the supply remains interrupted by the problems in the supply chains, by the war and also by the exit restrictions. As a result, there is now a greater risk of inflation expectations becoming unanchored and high inflation ensuing. And here the bank says that it must act decisively. We will not allow this high inflationsaid Paul Beaudry.

Inflation takes root when it feeds itself. Prices go up because other prices go up and because labor costs go up. These costs increase because workers want to afford higher prices for goods and services. It doesn’t take constant external forces like supply disruptions or firming demand to fuel this type of inflation. It’s almost going up on its own, mostly because people expect it to stay high or keep going up.

Paul Beaudry reminds that the Bank of Canada has intervened massively to support the economy through the purchase of government bonds during the pandemic. The bank’s balance sheet reached $575 billion in 2021. It’s now at $465 billion, and the institution expects to reach about $280 billion by the end of 2023.

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