BoC doublespeak on rate hikes muddies the waters – DLC's Cooper
by Ephraim Vecina 0 1 Nov 2018 MBN
The Bank of Canada’s latest decision to hike the benchmark interest rate to 1.75% is just the latest in its series of tightening measures meant to address household risks, but Dr. Sherry Cooper of the Dominion Lending Centres would’ve preferred the bank to be clearer about its future plans.
“The Bank of Canada believes the economy will grow about 2% per year in 2018, 2019 and 2020, in line with their upwardly revised estimate of potential growth of 1.9%. The Bank asserts that mortgage tightening measures of the past two years have ‘reduced household vulnerabilities, although the ‘sheer size of the outstanding debt means that vulnerability will persist for some time,’” Cooper wrote in a recent analysis.
She argued that the bank is not being entirely forthright about further increases.
“That is Bank of Canada doublespeak. What it means is expect three more rate hikes by the end of next year.”
And while BoC governor Stephen Poloz has yet to confirm when the next hike would be, or how many more will be needed, future upward adjustments are likely to happen sooner than expected.
Poloz stated that economic resilience and less business uncertainty (in the wake of proposals for an updated North American trade agreement) will play major roles in future hikes.
The official also stressed that Canadians have to wean themselves off the long afternoon of record-low borrowing costs and finally get used to the idea of 3% interest rates “as the new normal.”
“We sought to put more emphasis on the notion that someday we’re going to be back at neutral — and that neutral is 2.5 to 3.5% — so that people would begin to digest that as an approaching fact,” Poloz told MPs in Ottawa earlier this week.