Bank of Canada Warns Interest Rates Won’t Return To Pre-Pandemic Levels

Global inflation is easing, and lower rates are on the horizon, but those who didn’t take advantage missed out. That was the message from the Bank of Canada (BoC) Governor, speaking at the International Economic Forum of the Americas yesterday. Governor Tiff Macklem told the conference that central banks have made significant progress on inflation, and monetary policy no longer needs to be as restrictive. However, the risk of rapid inflation remains and that means a return to pre-pandemic rates is unlikely.

Monetary Policy No Longer Needs To Be As Restrictive

The BoC Governor emphasized monetary policy decisions have been working to moderate inflation. CPI fell to 2.7% in April, within the central bank’s target range (1 to 3%), and labor conditions are easing rapidly. That made the central bank comfortable trimming the overnight rate by 25 bps to 4.75%, a similar level to a year before. 

“With further and more sustained evidence that underlying inflation is easing, monetary policy no longer needs to be as restrictive as it has been,” explained Governor Macklem.

A Return To Pre-Pandemic Interest Rates Is Unlikely In The Future

Even with the progress, they warn the battle to contain inflation has been a long one. That means there’s a good chance the overnight rate may not need to be trimmed to pre-pandemic levels to get people borrowing again.  

“Interest rates may be easing in many economies, but global interest rates are unlikely to return to pre-pandemic levels. The new normal won’t be the old normal. And if we’re not going back, we’ll all need to adjust,” warns Macklem.  

Global Inflation Can Surge Much Faster In The New Economy

The news may be disappointing to some, but the Governor expressed concerns about reigniting inflation. The central bank is growing increasingly concerned that non-monetary policy measures can drive inflation higher, but it’s still their problem to deal with. The concerns cited include geopolitical tensions, technology, climate change, and shifting trade and investment flows. As a result, they see the potential for more supply-side shocks that can wreak havoc on the economy. 

The central bank also expressed concerns about its credibility with the public. Calling it “dented” by the inflationary shock, Governor Macklem stated they would communicate more with the public and investors. Though he appears to be ignoring his statement that rates will be “low for long,” contributed to the demand-side stimulus in the first place.  

Elevated global interest rates are both good and bad news. Low rates are indicative of an economy that needs stimulus to grow, with the pre-pandemic levels being established to deal with the liquidity shock post-Global Financial Crisis (GFC). Those fears of inflation never picking up again are clearly behind us, indicating things may be healthier going forward. On the other hand, the loss of cheap credit means productivity-driven growth needs to take control—an issue Canada is poorly prepared for. 



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  • Reply
    Derek the Realtor 5 days ago

    If they refuse to lower rates to 0% then they have a fiduciary duty to help people pay their mortgages.

    The government needs to step in and guarantee house prices so people who worked hard won’t be punished.

    • Reply
      Grim Reaper 4 days ago

      There’s no fiduciary duty to help people pay their mortgages or for anything else. I paid 18% mortgage interest in 1981 so stop your whining. The real estate ‘industry’ is to blame for the high housing prices and lack of housing. You are one of those people who helped to do that.

    • Reply
      Priced Out of the Market 4 days ago

      @Derek, not surprised this comment comes from a realtor. The statements you make are both contradictory and are no solutions in any real sense.

      The government cannot lower rates to 0% because that will drive inflation through the roof and leave us all poorer in the end. Why would anyone want that?

      The fiduciary duty you talk about will be financed by tax payer money so it is really about spreading the loss over a wider audience. Why should tax payers bail out folks who bought houses they could never afford under normal financial conditions?

      How exactly would the government guarantee house prices, up or down? If they put a ceiling on prices and drive them down, folks who have worked hard all their lives and depend on the sale value of their home for retirement will be left empty-handed. If they put a floor and drive prices up, young families that work two jobs just to make ends meet will still not be able to afford a home. One of these cohorts will lose out or they will share the pain.

      The reality is, the chickens have come home to roost and we’ll all be paying for it in one form or another.

    • Reply
      Triple B 4 days ago

      How can borrowed money cost nothing? If it does what would stop people from spending beyond their means? This is how ponzi schemes work. Too keep the ponzi scheme going inflation would need to sprial out of control. Everyone will have lots of borrowed money and not to be able to buy anything since it inflated beyond the means of purchasing.

  • Reply
    Rafaz 5 days ago

    This isn’t fair. The government needs to force the rates back down.
    People who have mortgages need help.

    • Reply
      Grim Reaper 4 days ago

      Government and banks are not fair. The government cannot force the Bank of Canada to lower or raise interest rates, it is independent of government.

    • Reply
      Taylor 23 hours ago

      Why should those who didn’t take out a mountain of debt be expected to bail out those who did? Your government isn’t going to save you, and didn’t force you to take out a mortgage

  • Reply
    brando 5 days ago

    You know what they said right before hiking up rates during covid?

    “Rates will remain low for the foreseeable future”.

  • Reply
    Craig 5 days ago

    It’s no go Tiff Macklem.
    “It’s no go the Yogi-Man, It’s no go Blavatsky.
    All we want is a bank balance and a bit of skirt in a taxi.”

  • Reply
    Mark Bayly 5 days ago

    It would help if the BOC stopped portraying low inflation numbers that they’ve dreamed up with their new inflation determination formulas .

    • Reply
      Grim Reaper 4 days ago

      Yes, inflation is still actually well above the “2-3% target” and the high inflation of the past 2 years is “baked in” now. Inflation affects each person differently, the degree of effect depends on what a person buys.

  • Reply
    Frank 4 days ago

    Why is it that Canada is ill prepared? Wonder how that happened? Did someone say you’ll never recognize Canada in 10 years? Double plus the stress test and look what’s happening. Millionaires always sleep well. No matter where they stole the money from.

  • Reply
    Grim Reaper 4 days ago

    Most millionaires are not thieves, they earned or inherited their wealth. Virtually anyone who owns a house in Toronto or Vancouver is at least a millionaire. Millionaires don’t “always sleep well”, they have nightmares just like the non-millionaires.

  • Reply
    Vincent Scott 4 days ago

    They raised the rates too fast & too late & have done great economic damage that we are only STARTING to see. Ego will have them take too long to lower rates creating even more damage…

    The rates will absolutely need to go below 3% to recover from the self inflicted BOC mess. They treated a supply & greedflation issue like it was a monetary issue – and it wasn’t. A 2008 solution to a 2021 problem was irresponsible & amateur to the detriment of the country.

  • Reply
    [email protected] 3 days ago

    Turn off the lights -the party is over in Canada
    Investors have junped to the USA to buy new 3000 sq ft homes for less than 400K.
    Canada is finished for 20 years.

  • Reply
    peter 1 day ago

    Tiff Macklem , preceded by two great minds in Carney and Poloz and awarded the job as the closest warm body , he was twice passed over for a very good reason , it’s a shame that incompetence is too often rewarded with promotion , government bonds are issued but with no buyers except for the Bank of Canada , which makes them worthless , debt piled on top of debt , disaster has only ever had one recipe….

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