Hikes are coming, but BoC uncertain as to when and by how much

by Ephraim Vecina23 May 2019

Late last week, Bank of Canada governor Stephen Poloz said that while increases in the benchmark interest rate will most likely take place, it’s still an open question as to exactly when and by how much.

The central bank’s last increase was back in October 2018, the latest in a series of five hikes beginning July 2017.

“The natural tendency is for interest rates to still go up a bit. I don’t really know how much a bit is, and what the timing might be,” Poloz said in an interview with BNN Bloomberg. “But it depends on our forecast coming true that the slowdown is temporary and getting through all that and getting back on the track we were [on] say a year ago.”

Just after the hold decision in late April, the governor stated that interest rates would still need to rise as soon as the variegated pressures hampering economic growth ease.

“It is hard to believe that the economy would settle in in a place where it’s growing at potential, and inflation’s on target, and we have unemployment at a 40-year low, and that we’d need a negative real rate of interest in order to sustain that.”

Poloz previously described the hike freeze as a policy stance stemming from global economic instability, along with other moderating factors like the North America v. China trade war and Canada’s current household debt levels.

“All of those things are kind of holding things back and the lower interest rates kind of push back and keep us at unemployment at a 40 or 50 year-low. So that’s balance,” he explained. “And that balance can shift when some of those headwinds dissipate.”

“The main thing of what [these headwinds have] done is they’ve slowed down investment,” the governor added. “Sentiment can turn around very quickly if there’s a resolution. That’s why the stock market goes up every time it looks like [the U.S. and China] has got a deal.”

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