Key interest rate could rise above 3%, says BoC's Beaudry

Further systemic volatility will force the central bank to raise rates again

Key interest rate could rise above 3%, says BoC's Beaudry

Bank of Canada deputy governor Paul Beaudry said that the institution might need to push its key interest rate up to 3%, or even higher, to effectively rein in the nation’s soaring inflation levels.

Updated figures from Statistics Canada showed that the inflation rate reached its highest point in 31 years with the 6.8% CPI reading in April.

Earlier this week, Beaudry said that the risk of further systemic volatility down the line would compel the central bank to raise its policy rate to at least the higher end of its 2%-3% neutral range.

“The situation today is totally different,” Beaudry said. “Price pressures are broadening and inflation is much higher than we expected – and likely to go higher still before easing.”

Read more: Analysts: Large BoC hikes will likely end sooner than later

The anticipated oversized hikes will build on the two 50-basis-point increases over the past couple of months. The BoC’s benchmark rate is currently at 1.5%.

Analysts recently polled by Bloomberg said that after three 50-bp hikes, the central bank is likely to implement three to four more hikes at 0.25% each.

Beaudry assured that the BoC will endeavour to avoid any prolonged deviation from the neutral range.

“We want to get [back] there as quickly as possible,” Beaudry said, while also acknowledging that a soft landing might prove “difficult”.