Monetary policy in Canada is still stimulative despite an increase in interest rates last week, central bank governor said

Monetary policy in Canada is still stimulative despite an increase in interest rates last week and more hikes will be needed to achieve the Bank of Canada’s inflation target, the central bank’s chief said on Tuesday.

“The appropriate pace of increases will depend on our assessment at each fixed announcement date of how the outlook for inflation and related risks are evolving,” Governor Stephen Poloz told the House of Commons Finance Committee.

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The Bank of Canada raised interest rates as expected last week — the fifth hike in 15 months — and said it might speed up the pace of tightening given that the economy was running at almost full capacity and did not need any stimulus.

“Even with last week’s increase in the policy rate … monetary policy remains stimulative. In fact, the policy rate today is still negative in real terms, that is, once you adjust for inflation,” said Poloz.

“The policy rate will need to rise to neutral to achieve our inflation target,” he added.

The overall annual inflation rate was close to the bank’s 2 per cent target, he said, while noting there could be further volatility in coming months.

© Thomson Reuters 2018