(Montreal) Interest rates will “probably not” go back as low as they were during the 2010s, warns the Governor of the Bank of Canada, Tiff Macklem.
“We will see what happens with inflation, but I do not anticipate that interest rates will return to the level of the pandemic, probably not even to the level before the pandemic,” he said during of a speech on Tuesday before the Council on International Relations of Montreal (CORIM).
The Bank of Canada maintained its key rate at 5% during its most recent announcement at the end of January. From 2009 to 2022, the key rate never exceeded the 2% threshold in a context of low inflation following the 2008 financial crisis, then during the initial shock of the pandemic.
Households should not take for granted that the thresholds of the 2010s were normal. ” They [les taux] were very low for almost 12 years, underlines the governor. When inflation is falling, we can reduce interest rates, but probably not to the levels we saw after [la faillite de] Leham [durant la crise financière de 2008]. »
Mr. Macklem clarified that the Bank of Canada estimated that the neutral rate would be in a range between 2% and 3%, during a press conference after his speech. The neutral rate is a theoretical rate where the economy should grow at full capacity without inflation exceeding the target. “In our model, we use a rate of 2.5%. »
The governor stressed “that there was a lot of uncertainty around the neutral rate”. “When we use the models with historical data, it suggests something between 2% and 3%. When we look at the future, it’s more likely that it will be higher than lower. »
PHOTO ROBERT SKINNER, THE PRESS
He stressed that certain factors were inflationary in nature, such as the recent brakes on globalization. “These factors work in the opposite direction than historical data. It is possible that the neutral rate is a little higher. »
The consensus of economists anticipates that the Bank of Canada will lower interest rates this year as inflation moderates and the Canadian economy slows.
At the end of January, the Bank of Canada also opened the door to a possible rate cut. “As monetary policy works, the Council no longer seeks to know whether it is restrictive enough,” the governor reiterated on Tuesday. Rather, it seeks to know how long the tightening should continue. »
Mr. Macklem did not want to say when the first drop could take place. “We’ll see,” he replies, triggering laughter in the room. I can’t circle (a date) on a calendar. »