Reply To: Bank of Canada Raises Rates 100 Basis Point in Largest Increase Since 1998


Bank of Canada’s Paul Beaudry speaking after Bank of Canada rate hike of a 50 basis points yesterday

increasing likelihood that it may need to raise policy rates to 3% or higher
risk is now greater that inflation expectations could be de-anchored and the high inflation could become entrenched
in deliberations ahead of June 1 high, bank noted price pressures are broadening and inflation likely to go higher still before easing
bank must be – and will be – resolute in bringing inflation back down; we will prevent high inflation from becoming entrenched
we expect strong growth and low unemployment to continue; our interest rate increases will take time to have their full impact Canadian economy is moving further into excess demand; economic rebound has been much faster than the bank anticipated
the more significant of the two forces driving Canadian inflation is largely international and is more complicated for monetary policy to tackle
normally, inflationary shocks links to external supply disruptions don’t persist for long, so BOC typically did not react to such shocks
Bank opted against raising rates in 2021 because of what it saw as a temporary inflationary shocks from abroad and because economy was operating well below capacity for most of the year
Bank also chose not to raise rates in 2021 because premature tightening could have made it harder for people who lost jobs during pandemic to find work
The risk of leaving rates low was that higher inflation could start to become entrenched; the risk seemed appropriate at the time given slack in economy
in July, bank will provide an initial analysis of its inflation forecast errors