Canadian economy ‘overheating’, higher rates needed -Macklem

Bank of Canada Governor Tiff Macklem attends a news conference in Ottawa, Ontario, Canada April 13, 2022. REUTERS/Blair Gable

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OTTAWA, April 27 (Reuters) – Canada’s economy is overheating, creating domestic inflationary pressures, and higher interest rates are needed to calm the situation, the managing director of the Bank of Canada said on Wednesday.

Governor Tiff Macklem, testifying before a Senate committee, said interest rates may need to rise above the neutral rate range – currently estimated at 2% to 3% – for some time to bring inflation back on target.

“If you sum it up, the economy is overheating. This is creating domestic inflationary pressures. We need to cool growth, calm inflation,” Macklem said.

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“It’s going to be tricky,” he added. “But we need to raise interest rates to moderate this spending growth and get inflation back on target.”

The Bank of Canada raised interest rates by a rare 50 basis points earlier this month, and Macklem signaled that the central bank would likely consider a second oversized hike at its next meeting on June 1. read more

Whether rates rise will depend on how the economy reacts to the increases and the outlook for inflation, Macklem reiterated.

“We may have to go above the neutral rate for a while to get inflation back on target, but it’s a little above 2 or 3%, it’s not 7% ​​or 8% “, he said, when asked if rates could return to levels seen decades ago.

“This reflects the fact that inflation expectations are well anchored,” he added.

Canada’s inflation rate hit a 31-year high of 6.7% in March. Read more

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Reporting by Julie Gordon in Ottawa Editing by Chris Reese and Leslie Adler

Our standards: The Thomson Reuters Trust Principles.

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