Neutral rate

The "neutral rate" is the theoretical monetary policy rate that keeps the economy operating at full capacity with no inflation pressure.

In other words, it's the overnight rate that is considered to be neither stimulative nor restrictive for the economy. When the policy rate is neutral, inflation is stable at 2% and we enjoy sustainable economic growth.

As of 2023, the Bank of Canada estimates the neutral rate to be in the 2% to 3% rate, or 2.50% on average.

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