Interest rates might begin going up in earnest once the economic slowdown eases
Bank of Canada governor Stephen Poloz said late last week that the benchmark interest rate will most likely go up, but he expressed uncertainty as to exactly when and by how much.
The statement came in the wake of five increases from July 2017 to October 2018. The central bank has previously attributed its hike freeze since then to global economic instabilities, along with other moderating factors like the cross-Pacific 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,” Poloz said in an interview with BNN Bloomberg. “And that balance can shift when some of those headwinds dissipate.”
“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,” he added. “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.”
The trade war has had an especially tangible impact, the governor stated.
“The main thing of what they’ve done is they’ve slowed down investment,” Poloz explained. “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.”
A few days after the hold decision in late April, Poloz noted that interest rates would still need to rise as soon as the multiple pressures (including said trade tensions) 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,” he said at the time.
