tiff macklem : opening statement before the monetary policy report press conference opening statement by mr tiff macklem, governor of the bank of canada, before the monetary policy report press conference, ottawa, ontario, 13 april 2022. * * * good morning. i ’ m pleased to be here with senior deputy governor carolyn rogers to discuss today ’ s policy announcement and the bank of canada ’ s monetary policy report ( mpr ). russia ’ s unprovoked invasion of ukraine is causing enormous human suffering, and our hearts go out to the ukrainian people. the war has also introduced a major new source of uncertainty to the global outlook, and it is boosting already high inflation in many countries, including canada. against this background we have three main messages this morning. first, the canadian economy is strong. overall, the economy has fully recovered from the pandemic, and it is now moving into excess demand. second, inflation is too high. it is higher than we expected, and it ’ s going to be elevated for longer than we previously thought. third, we need higher interest rates. our policy interest rate is our primary tool to keep the economy in balance and bring inflation back to the 2 % target. this morning we raised our policy rate by 50 basis points to 1 %. and we indicated canadians should expect further increases. let me expand on each of these three themes. recent data suggest the canadian economy weathered the omicron variant of covid - 19 remarkably well, and the economy has considerable momentum going into the second quarter. a broad set of indicators suggests that our economy is now moving into excess demand. the labour market shows this clearly. job growth has been strong, the unemployment rate is at a record low, job vacancies are elevated, and wage growth has reached pre - pandemic levels. businesses are also telling us they expect they ’ ll need to increase wages further to keep and attract workers. looking forward, momentum in most major spending components points to strong growth in gross domestic product this year. canadians are spending more on services as public health measures ease and spending on goods remains solid. housing activity has remained strong and is expected to moderate, but to still - elevated levels. business investment and exports are both picking up, and higher prices for many of the commodities canada exports are bringing more income into the country. higher interest rates should moderate growth in domestic spending as we move through this year and next. at the same time, canada ’ s

. we are committed to using our policy interest rate to return inflation to target and will do so forcefully if needed. let me now say a few words about the governing council ’ s deliberations. we of course discussed the economic impact of the invasion of ukraine. the war has led to higher and more volatile energy prices. the war has also disrupted trade, increased uncertainty and caused volatility in financial markets. this will weigh on global growth, particularly in eastern europe. the impact of the war on growth in canada is likely to be small for two reasons. first, our economic links to ukraine and russia are very limited. and second, while the war has reduced global growth overall, it has increased the demand and prices for commodities we produce and export, such as oil, potash and wheat. we spent considerable time discussing the impact of higher inflation on canadians and on their inflation expectations. people are increasingly expecting inflation will be higher for longer. but they continue to see inflation coming down, and their longer - term inflation expectations are still anchored on the 2 % target. finally, we discussed the impact of increasing our policy interest rate. while we have been clear that canadians should expect a rising path for interest rates, seeing their mortgage payments and other borrowing costs increase can be worrying. we will be assessing the impacts of higher interest rates on the economy carefully. we also discussed where rates might end up — how high will they need to go? i know many canadians have the same question. so let me share the governing council ’ s thinking. canadians should expect interest rates to continue to rise toward more normal settings. by more normal we mean within the range we consider for a neutral rate of interest that neither stimulates nor weighs on the economy. the neutral interest rate isn ’ t something we can measure directly. we have to estimate it. and our estimate is between 2 % and 3 %. today we raised the policy rate to 1 %, still well below neutral. this is also below the pre - pandemic policy rate of 1. 75 %. 2 / 3 bis central bankers'speeches it is important to remember that we have an inflation target, not an interest rate target. this means governing council is not on autopilot to a pre - set destination for the policy interest rate. how high rates go will depend on how the economy responds and how the outlook for inflation evolves. the economy has entered this period of excess demand with considerable momentum and high inflation, and we are committed