Introduction
Good morning, it's wonderful to be here in Charlottetown today to give my first public speech as a deputy governor at the Bank of Canada. I'm delighted not only to visit Prince Edward Island but also to learn more about the local economy. To do our job well at the Bank, we need to understand how our policies affect people and businesses across this vast country. That's why I'm meeting with business and community leaders from several sectors while I'm here.
Our job at the Bank is to keep inflation low and stable, so we aim to keep it centred on a 2% target. This is how we ensure the economy works best for all Canadians. Inflation has now come down significantly and is back at 2%. We want it to stay there. For this reason, we decided last month to lower our policy interest rate by 50 basis points to 3.75%. Our focus now is on ensuring that inflation remains low, stable and predictable. We need to stick the landing.
The past few years have been difficult for Canadians. The COVID-19 pandemic caused the sharpest economic downturn in a century, which was followed by an unexpectedly fast rebound. Inflation surged to a four-decade high, and the Bank responded by increasing interest rates to levels not seen since the early 2000s. We did what we believed was necessary to restore price stability. And it worked: inflation has returned to 2%, and interest rates have started to come down. But it hasn't been painless.
Higher interest rates were a burden for families and businesses. Inflation is back to normal, but it may not feel that way for many people. Especially if they are facing higher interest payments on their mortgages or other loans.
With all of this in mind, the Bank owes it to Canadians to assess how effective our interest rate decisions were in countering high inflation. I'll begin by discussing the factors that led to the run-up in inflation, and I'll explain how monetary policy worked to address them. My aim is to shed some light on the question of whether higher interest rates were really needed to bring inflation down to 2% or whether it would have returned to target on its own.
