In a speech overnight, BoC Deputy Governor Toni Gravelle said the decision to maintain policy interest rate at 5% this week was an effort to “balance the risks of over- and under-tightening.” BoC aims to avoid excessively slowing down the economy, while also alleviating the burden of high inflation on Canadians.
Gravelle observed that the Canadian economy “no longer looks to be in excess demand”, a shift that has contributed to reducing price pressures across a wide array of goods and services. He added said, “The economy is now roughly in balance.
He also emphasized that BoC is closely monitoring several key economic indicators, such as inflation expectations, wage growth, and corporate pricing behavior. These factors are crucial in determining whether inflation is on a consistent path towards the 2% target.
Despite the current state of balance in the economy, Gravelle stated, “Given the risks to the inflation outlook, we remain prepared to increase the policy rate further if needed.”