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Bank of Canada: Core inflation and excess demand caused interest rates to rise – Paul Beaudry

“We felt it was necessary,” the Bank of Canada Deputy Governor, Paul Beaudry, in connection with the 25 basis point rate hike announced on Wednesday. He added that strong household spending and high inflation prompted the rise.

Beaudry will be speaking at the Victorian Chamber of Commerce in a few minutes and will answer questions from reporters.

In his report on economic developments, titled “Are we entering a new era of higher interest rates?” Beaudry argues that a baseline scenario is possible “in which the real neutral rate remains broadly at its pre-pandemic range, but risks appear to be mostly on the upside.”

Main conclusions of the speech:

“When we looked at recent core inflation dynamics combined with current excess demand, we agreed that headline inflation was more likely to get stuck well above the 2% target. Based on this accumulated evidence, we decided raise the official interest rate to curb demand and restore price stability.”

“We’ll have more to say about all this in our July forecast.”

“We know that this tightening cycle has not been easy for many Canadians. But the alternative – not controlling inflation – would be much worse, especially for people living on low or fixed incomes. When inflation is stable around target of 2%, the anxiety created by large swings in the cost of living disappears.”

Market reaction:

Beaudry’s comments did not have a significant impact on CAD. USD/CAD continued to trade around 1.3350/55, slightly lower on the day.

Source: Fx Street

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