With inflation broadening and remaining higher for longer, the risk is that Canadians start to think that high inflation will become entrenched. This brings me to my third point—interest rates are increasing. Raising the policy rate is the main tool the Bank has to moderate demand, prevent a persistent buildup in domestic price pressures and keep inflation expectations moored on the 2% target.
The economy can handle higher interest rates, and they are needed. Increases in the Bank’s policy rate raise the interest rates that banks and other lenders charge their customers. These include the rates on business loans, consumer loans and mortgage loans. With increases in the policy rate, interest paid on savings products will move up as well.