- G10 Markets
- Fixed Income
- Foreign Exchange
- Emerging Markets
- MNI Research
- Global Macro
- Political Risk
- About Us
Exclusive interviews with leading policymakers that convey the true policy message that impacts markets.
- G10 Markets
- Emerging MarketsEmerging Markets
Real-time insight of emerging markets in CEMEA, Asia and LatAm region
Real-time insight of oil & gas markets
Reporting on key macro data at the time of release.
- MNI Research
- About Us
Real-time Actionable Insight
Get the latest on Central Bank Policy and FX & FI Markets to help inform both your strategic and tactical decision-making.Free Access
MNI:BOC 'Focused On Taking The Steps Needed' To Restore 2% CPI
The Bank of Canada "remains focused on taking the steps needed to restore inflation to 2%," Deputy Governor Paul Beaudry said in a speech Thursday, one day after the central bank unexpectedly raised its policy interest rate to the highest since 2001.
Beaudry's prepared text didn't give a direct view of whether the 4.75% benchmark would be lifted again at the next meeting on July 12, adding "we'll have more to say about all of this in our July forecast." He reiterated the quarter-point hike was made in response to "accumulated evidence" and the growing risk inflation could get stuck well above target. Officials were concerned about unexpected strength in consumer spending on goods and particularly demand for things like furniture that usually are more sensitive to higher borrowing costs, he said.
The rate hike brought the central bank off the sidelines after policymakers signaled the increase to 4.5% in January could be enough to restore price stability, a decision made at a time when the Federal Reserve and ECB were signaling more tightening was needed. Most economists who have updated their forecasts overnight see the Bank of Canada hiking another quarter point next month, extending the most aggressive campaign in decades.
"We know this tightening cycle has not been easy for many Canadians. But the alternative -- not controlling inflation -- would be far worse, particularly for people living on low or fixed incomes," Beaudry said.
"The bottom line is there appears to be more momentum in demand than we expected," Beaudry said. His remarks will be followed by audience questions and a press conference. "The data since April have tipped the balance."
Beaudry's speech mainly focused on the potential for the global and Canadian economies to move into a new era of higher interest rates. Some of the forces pushing neutral interest rates down over the last quarter century could be easing up or unwinding, he said. Those downward pressures have included the rise in savings linked to aging Baby Boomers, the integration of China and other high-saving economies into the global marketplace, rising inequality that puts more money and savings into the hands of the rich, and surprisingly weak business investment.
Canada's nominal neutral rate has remained in a band of 2% to 3% through the pandemic, Beaudry said, but that could change over time. "My overall argument today is that a base-case scenario where the real neutral rate remains broadly in its pre-pandemic range is possible, but the risks appear mostly tilted to the upside. In the Bank’s view, that makes it more likely that long-term real interest rates will remain elevated relative to their pre-pandemic levels than the opposite," he said.
Sign up now for free access to this content.
Please enter your details below and select your areas of interest.
MNI is the leading providerof intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.
Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.