The Bank of Canada is considering whether it should raise its 2 percent inflation target as it adapts to a future of slower global growth and lower policy interest rates.
The so-called neutral interest rate in Canada — the longer-term level needed to keep inflation and growth balanced – – has fallen by 1.5 percentage points to between 3 percent to 4 percent since the global financial crisis, Deputy Governor Agathe Cote said today in Calgary. That will probably increase the frequency of occasions when the central bank needs to increase stimulus but is “constrained” by interest rates at about zero percent, Cote said.
“These factors suggest that consideration should be given to an inflation target that is above 2 percent,” Cote said in a speech today in Calgary. The success of inflation targeting in Canada means “the bar for change is high,” she said.