Was The Bank of Canada Reckless For Saying Rates Will Be Low Until 2023?

Many Canadian real estate buyers and investors are struggling with higher interest rates. They got some bad advice, not from a Realtor or mortgage agent, but the Bank of Canada (BoC). In a now infamous address in October 2020, Governor Tiff Macklem assured households that rates would be low for long.

Households and businesses are now facing a policy rate 15x higher than expected. It wasn’t just bad advice, the Governor willfully ignored how central banks work. This was a borderline reckless comment that likely clouded many of the following decisions.

Bank of Canada Assured Households & Businesses Low Rates Until 2023

At the October 2020 speech, Governor Macklem assured households access to cheap credit. He explained the central bank will hold the policy rate at the lower bound (0.25%) until the inflation target was hit. It’s one thing to give the public a timeline, it’s another to reinforce that timeline by assuring people it will be low for long.

“We’re going to hold our policy interest rate at the effective lower bound, until the slack is absorbed, so that we can sustainably achieve our 2% inflation target, and we’ve indicated that won’t happen until sometime in 2023. What does that mean? It means that if you’re a household considering making a major purchase… If you’re a business considering investing, you can be confident that interest rates will be low for a long time.”

It proved wrong, but the issue is bigger than that. That’s just not how central banks work, and the Governor had to know that.

Central Banks Exist To Control Inflation, Not Provide Cheap Credit

To understand how reckless this was, you need to know the primary role of the BoC: control inflation. It’s a single-mandate central bank with the job of keeping inflation at the target. The target rate is currently 2%, with a tolerance of 1 point. Anything between 1% and 3% are considered acceptable for inflation. 

They manage inflation primarily by using interest rates to influence money supply growth. When that fails, they use tools like quantitative ease (QE) to drive more inflation. Similarly, if they need less inflation they use the opposite— quantitative tightening (QT). When inflation was ripping way past the target, it’s worth nothing they were still using QE. Currently the BoC is using QT, but they aren’t hitting the break as hard as they were hitting the gas.

Still have doubts? It’s the first thing on the BoC website: “We are Canada’s central bank. We work to preserve the value of money by keeping inflation low and stable.” 

Central Banks Should Be Data Dependent, and Respond—Not Control

Central banks are responding to conditions, and should therefore be data dependent. It also takes 18 to 24 months for the market to fully reflect changes in monetary policy. In October 2020, when Governor Macklem said this, he was less than a year into the impact of rate cuts.

They would have known at least a year more was needed to assess the impact. On top of that, they said it was a period of uncertainty, but they were certain how they’d act. That’s a huge problem.

A data-dependent organization shouldn’t assure people of where things will be. It clouds their judgment, and brings up issues with the transitory inflation narrative. Commercial banks called out the dismissal of inflation a year before the rate hikes. Was the BoC the only one that didn’t see this, or were they trying not to see it? 

It’s important to recognize that a forecast isn’t a promise. However, what the BoC did was more than just a forecast, and it wasn’t unqualified advice either. Governor Macklem assured households that rates would be low, to drive credit growth. Households and businesses are now facing a policy rate 15x higher than they were told to expect. At least he found some inflation, right?



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  • Charles D Flynn 2 years ago

    You never print comment in any event, so why make one?

  • Jason Balewski 2 years ago


  • Oldguy 2 years ago

    This was not an accident, but an intentional plan to support the Liberal government, and it both predates and post dates Covid. The BofC got some cover when other countries’ central banks did the same thing, but the bank ignored its mandate to please its political masters long after it became clear that it was time to do the right thing. But the fix was in.
    If you don’t believe me, ask yourself why they only increased the bank rate by 50 basis points. Because Trudeau wants it all to be over. If the $Cdn goes to 50 cents and bananas cost 5 bucks each, then stay home and eat turnips this winter.

  • Rolf Baumann 2 years ago

    First time I ever comment FYI.

    On on hand were all sheep being led by our Sheppard BoC. Until we’re brought to slaughter, where we are today.

    On the other hand we’re happy to eat what the Sheppard provides, optimism.

    Bottom line were all sheep expecting our Sheppard, the government to take care of us.

    Think like a wolf and it may help but that will test democracy.

    I’m sure if I played an evil Rick Mercer there would be someone on the sensor button.

    [email protected]

    • Gerald Silva 1 year ago

      Hate to say this. the Sheppard was on drugs.

  • El 2 years ago

    Brake not break

    • Gerald Silva 1 year ago

      People were on high speed, not BoC. When try to brake, will break with great consequences.

  • Daniel Reszczynski 2 years ago

    Central bank also believes in Santa……ike the Fed they watch the bond market…their wages are a wadte of tax payer money

  • Dumb as Dogshit! 2 years ago

    Tiff has done everything perfect, the right man for the job. I would hope Tiff and his staff get even bigger bonuses next year. Can anyone say Nobel Peace Prize. Tiff is a national treasure.

    • Gerald Silva 1 year ago

      I agree. Here is my opinion: I have seen many Governors of BoC in the past 50 years.
      Starting with: Gerald Bouey, who handled (1980s inflation with very high interest rates, getting the lead from the US Treasury secretary Paul Volker). And then came John Crow, Gord Thiessen, David Dodge, Mark Carney, Stephen Poloz who did not have to face what Governor Tiff Macklem inherited.
      Governor Tiff Macklem walked into this job with his team in the beginning of Covid-19 Pandemic, without any knowledge of what is about to unfold. His job was, like a good parent would say, everything is going to be alright. He inherited a huge war. A Currency War. His job is to keep the Canadian dollar from falling, not real estate. If he fails to do so, we will import massive inflation from our trading partners because of the US reserve currency status.
      I had a very dim view of Governor Macklem. Now I think, he is a man with balls of Steel and a knight in shining Armour who is defending our currency, and the Country.
      I am a person from Ceylon (Now Sri Lanka) who came to Canada 50 years ago who learnt and still learning how this country operates.
      I take my cap off to Governor Macklem, and his team for doing a splendid job.
      Only the generations going forward will see what BoC has done and thank BoC.

  • Dave 2 years ago

    That may be the case but imagine how how high house prices would have gone had boc rates stayed as low as they were? House prices in Vancouver where already in the stratosphere.

  • Tim Cooper 2 years ago

    Any comment on low rates are subjective. In all reality the rates right now are actually low. If compared to many other countries, our rates a generation ago or even looking at the big picture of reality.
    I agree the statement that was made was way worse than a poor choice of words, so poor actually question why the person responsible for stating that wasn’t let go? But how could have people been sooo blind as to not see that the economy had to adjust sometime? And the only way to adjust from full speed ahead is downward? Isnt it?
    Todays rates are still lower than my first 2 mortgages I had, however I had a savings put away, a plan for rates taking off and lived well within my means. Coffee at home, lunches from my kitchen and going out was an occasional luxury.
    Rates are not high til we hit the double didgets folks. If u start planning now you have chance, if you put it off then don’t complain

  • Amjad Shaikh 2 years ago

    Wondering why the BoC not doing enough on QT and focusing more on rate hikes blindly. They knew the fact that QE and low interest rates (done under government pressures) have plyed havok with the proprty and equity prices; this problem should have been addressed through Macroprudential measures, that is, sector specific tax measures. Further, without keeping in mind the high cost of borrowings for the businesses and also the erosion of purchasing power of mortgage loan borrowers, BoC is recklessly increasing the interest rate, thereby risking them their homes.
    Its the time the BoC should take a pause and coordinate with the govt to take sector specific macroprudential meases as well as to overcome supply side bottlenecks.

  • Ruby Tuesday 2 years ago

    BoC, commercial banks and their agents all got it wrong. The latter were projecting bank borrowing rate hikes up to 2-3%. what are we at currently? Who is being held accountable?

  • Peter File 2 years ago

    Aged like milk.

  • Madmax 2 years ago

    When the CFO of Twitter on live forecast said “We have done some mistakes”, Elon Musk who was present there just said “You are Fired”. No error in judgement.
    When the BOI Governor said in the parliament for a question he was asked that “Some mistakes have been done” he should have been fired then & there. When dealing the lives of millions of Citizens, you have no scope for error. This was a blunder he has committed.

  • Sweatshop Profiteer 2 years ago

    The canadian gov desperately needs it’s sweatshop profit real estate industry to prop up the economy, what else is going on? no oil that’s for sure

    • Rifleman 1 year ago

      Liberals said that Harper put his eggs in one basket. Wrong Trudeau doesn’t even have a basket. Housing and government jobs, thats it. Justin and hi father are responsible for most of the debt in this country.

  • Alex R 2 years ago

    BoC should have warned home buyers not to take variable mortgages because rates are deceptively low now and could rise to high levels any time. That would have been responsible. Instead BoC fooled unsuspecting home buyers into taking variable mortgages thinking that rates would be low for long, and now trapped them into paying huge monthly payments. It is disgusting.

  • M W 2 years ago

    Why is this article’s title phrased as a question? It’s not a debate- such statements would never have been made if Macklem cared about the consequences of his actions. This is by all accounts and definitions reckless, and both Macklem and the Bank should be held accountable for their actions and behavior.

  • JJ 2 years ago

    Absolutely right. Tiff should be fired without benefits for miss-selling to the entire country. Should be fined in millions.

  • Alex A 2 years ago

    “There is always a reason to the madness”

    Similar to the 6 – 9 month delay for interest rate hikes to be felt, there was a delay the other way around. Simply because it all hinges on how much a buyer trusts the current situation and is willing to bite the bullet. To do that, they had the only person that should remain neutral, cave in and comment on things that were outside his ability to foresee. This essentially got the economy in the 5th gear and since then, between speculation to everyone and their grandmother having free money, to students who randomly purchased 30 mil homes, we are now moving hypersonic.

    I can’t help but feel like a “Wealth transfer” was attempted and botched, and now they’re trying to clean up the mess through interest rates (and based stats presented). Between corporations and businesses, who use interest to save on taxes and individuals who have already paid the home they bought just 10 years ago (400k/500k price tags look like spare change compared to today), who are they hoping to reign in? On top of that, we’re expecting 500k immigrants by 2024, most likely awarded to those who bring in money or high paying jobs.

    I really think this ponzy scheme is going to punish our children in ways that are not deserved.

  • Kris 2 years ago

    They have been reckless for the past nearly 15 years. This experiment will ruin the country…in fact it already has

  • Poor Middle Class 2 years ago

    Can you sue BoC or its governor for giving wrong statement at that time which is impacting people’s life now?

  • Sitakant Sarangi 2 years ago

    If it’s a mistake from a common human then lot of rules but what’s the rule for politicians and the people in those high paying white collar job if they make a mistake. Practically few days in the news or nothing in the news and after that absolutely nothing going to happen to them. How is it possible that they simply change their statement and views when they know peoples life depends on their statement and views.

  • Beel 2 years ago

    Stupid to call out the bank on this, from 2020, COVID, no context except THE sentence ….probably the paragraph around it had some perspective. Anyway, housing up sharply too, offsetting interest rates. If you were hi leverage, should have locked in……

  • Jane 2 years ago

    Fake news

  • Alex 2 years ago

    Can the boc be sued?

  • Lynn 2 years ago

    Paul Martin said the same thing back in 1993 or 1994. Rates will remain low for the foreseeable future. I think they were around 4% and over the course of the next 6 to 8 months they rose to around 7%. It was a long time s ago please correct me if my dates are wrong. Never believe them.

  • KHURRAM JAMIL BUTT 2 years ago

    The question was, was it reckless. Yes, it was. Investors base their projections on the information available to them. THIS is what BoC told the mkt in Oct 2020 and then again in Feb 2022. By not giving sufficient time to investors and especially homeowners to readjust their positions and rapidly changing rates several times, the BoC management has exposed their incompetence. Going by the democratic spirit of responsibility, an institution that has the power to determine the economic fortunate of citizens SHOULD by rights be controlled by those citizens, and be answerable for its decisions. BoC’s management have acted like Czars.
    From their perspective, I will be just ONE SINGLE data point. From my perspective, my entire life stands irredeemably ruined. I know I will never fully recover. I’m sure they never thought about THAT when fixing “inflation” that they created in the first place.

  • CD 2 years ago

    Sure, Tiff/BoC made that statement in October 2020, but it was always subject to inflation.

    When inflation exceeded 2% target, the BoC was warning throughout 2021 (as early as April 2021) that rates would be going up sooner by 2022H2 (later updated to 2022Q2).


    Besides the 1 year warning by BoC, who thinks it’s a good idea to take a VRM when rates are at historic lows?

    IIRC, the delta between 5-yr fixed & VRM was only 50bp throughout 2021.
    People gambled thinking BoC would blink.

  • Stan Tisshaw 2 years ago

    Great comments! I’m asking everyone to start sending your questions to the BoC, PM and your MP’s directly. As long as you ask a question they have to reply.

    BoC needs to adjust rates objectively based on data not hunches like “transitory inflation”
    I asked the BoC & PM to adjust interest rates monthly by as little as a 1 /4 point. Also to expand StatCans “basket of goods” greatly.
    Canadians need to demand transparency and objectivity!

  • Dennis_K 1 year ago

    One thing I don’t understand is why did the BoC find a need to lower the overnight rate for the purposes of the pandemic, in the first place? I understand government support for individuals who lost their means of support due to public health measures, but why the overnight rate?

    What was this meant to achieve, for individuals and businesses? The overnight rate has been ‘low’ (i.e. < 2%) continually since 2009 (to 2019), and inflation also continually bobbed between 1 – 4% in that timeframe – essentially on-target (source: TradingEconomics.com). So why was there a need to substantially lower interest rates for the purposes of the pandemic? Was there an actual risk of deflation, hence the need for such stimulus?

    What was the BoC's intention?
    i) to stimulate demand for goods and services?
    ii) to allow persons and businesses to refinance outstanding debt at a lower rate, to make
    payments easier during the pandemic (and shortly thereafter)?
    iii) to allow easier business investment (i.e. R&D, production expansion / efficiency increases, etc.)?

    For (i), why would the BoC want to stimulate more demand, based on borrowing, during a time of foreseeable supply constraints? (i.e. during a time when the ability to produce goods in 'normal' quantities per unit time, as well as ability to deliver quantities within 'X' normal time, has been necessarily limited due to public health measures)? For a regular day-to-day, week-to-week life, during the pandemic, why would consumption of regularly needed items drop due to the pandemic (with the exception of transportation fuels)? Why would lowering interest rates help in this regard? Wouldn't dropping interest rates only help with purchasing major items where borrowing is normally required (i.e. homes; cars; maybe large durable household goods i.e. appliances, HVAC; renovation materials; etc.)? Was there really a risk of demand in these sectors really dropping because of the pandemic (and do we know of any historical precedents parallel to this, anywhere in the world)?

    Why would we need to stimulate demand in a supply-constrained envirnoment, when clearly a lack of consumption is not a problem in our society, given ever-increasing amounts of consumer debt pre-pandemic?

    For (ii) and (iii), do we have any sense how much of total borrowing went into what sectors of the economy, both over the duration of the pandemic, and during (let's say) 5-year averages since 1995? Hopefully that borrowing went to refinancing debt, as well as investments in productivity. It sure would be helpful to see if the borrowing was spent in a manner that was intended, and that intention was to keep people afloat, and business able to rebound easily in terms of fulfilling future demands.

    And even if we manage to get inflation back to the 2% (annual) target anytime soon, don't we still need to induce some kind of short-term recession in order to get prices actually back down to where they should have been, prior to inflation soaring above 2%? Meaning, don't we need to see some deflation to have actual prices, which have gone up by to 8%, come back down to where they need to be, particularly given where median wages are?

    Obviously I have no economics or finance training, but these are the basic questions that I find myself asking.

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