Murray Says Canada Rate Can Be Off Neutral When Price Target Met

Bank of Canada Deputy Governor John Murray said it’s a misconception that policy makers must maintain interest rates at a “neutral” level when inflation is near the central bank’s target and the economy is close to full output.

Murray, one of six people who set the central bank’s key interest rate, including Governor Mark Carney, said the group must look ahead to pressures that may take inflation away from their 2 percent goal even when the economy is balanced.

“Headwinds and tailwinds are often present, threatening to push economic activity and inflation higher or lower,” Murray, 63, said in the text of a speech he’s giving today in Vancouver. “Monetary policy needs to lean against these forces with opposing pressure from higher or lower interest rates in order to stabilize the economy and to keep inflation on target.”

The bank’s April 17 policy decision said that a rate increase “may become appropriate” because of a faster-than- expected recovery. Murray’s speech didn’t update the bank’s current economic outlook. The benchmark overnight lending cost has been at 1 percent since September 2010, the longest pause since the 1950s.

Today’s speech echoes earlier comments by Carney, who said in September he has “considerable flexibility” in how fast inflation returns to the bank’s target, and said that investors shouldn’t expect him to rely on “mechanical rules” in setting interest rates.

Murray also reiterated that monetary policy can be used to guard against financial-market excesses in “exceptional circumstances” where regulation and other tools fail.

Most of Murray’s speech dealt with the process by which the central bank comes to an interest-rate decision. He spoke to a mortgage broker group in Vancouver, where officials have said they are worried about a surge in the city’s condominium market.

To contact the reporter on this story: Greg Quinn in Ottawa at

To contact the editors responsible for this story: Christopher Wellisz at; David Scanlan at

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