Bank of Canada’s 1% policy rate ‘too stimulative,’ Gravelle says

Bank of Canada Deputy Governor Toni Gravelle said borrowing costs need to rise quickly to more normal levels to bring inflation back to target, and that the current policy interest rate of 1 per cent is “too stimulative.”

In a speech Thursday entitled “The Perfect Storm,” Gravelle reiterated that rates need to rise further into the neutral range of 2 to 3 per cent in order to cool domestic inflation and bring the economy back to balance.

“We are taking actions to normalize our policy rate quickly and are prepared to be as forceful as needed,” Gravelle said, according to prepared remarks.

Gravelle said the central bank may pause increases to interest rates at the neutral range if price pressures begin to reverse course, or if heavily indebted Canadian households reduce their spending by more than expected.