High interest rates mean short-term pain for long-term housing affordability – Financial Post
In the current debate about how to make housing affordable in Canada, there is a curious omission: the role of monetary policy, both of excessively loose monetary policy in creating the problem and of more responsible monetary policy in solving it.
The global financial crisis of 2008-09 led central banks around the world to reduce interest rates to historically low levels, which made perfect sense during the crisis, but then to keep them there for more than a decade, which sowed the seeds of the affordability crisis we are now living through. Low rates were justified in two ways: inflation was low, so they seemed appropriate or at least not harmful in their role in inflation-targeting, and banks and other lenders that…
Inflation targeting ain’t broke so let’s not fix it – Financial Post
The last two years have not been kind to central banks. Inflation in many countries soared far beyond target, reaching levels not seen in decades. Central bankers have responded with necessary but painful interest rate hikes.
Despite disappointment in the performance of many central banks, let’s not lose sight of key lessons. First, inflation stinks, inflicting most harm on those who can afford it least. Second, central banks are the best institutions we have to make sure it goes away and doesn’t come back. As we head into 2024 and inflation continues to fall, it’s worth remembering why the world established central banks and low inflation targets in the first place.
Until the 1990s, central banks struggled…
Kronick, Ambler – Inflation is Easing: Let Us Count the Ways
From: Jeremy M. Kronick and Steve Ambler To: Canadian Inflation Watchers Date: December 13, 2023 Re: Inflation is Easing: Let Us Count the Ways The Bank of Canada surprised no one by holding its target for the overnight lending rate at 5 percent last week. Early-December Statistics Canada releases showing a decline in third-quarter GDP and an uptick in the unemployment rate sealed […]Despite the Bank of Canada’s continued tough talk, rate cuts are coming – Globe and Mail
The Bank of Canada surprised no one by holding its target for the overnight lending rate at 5 per cent on Wednesday. Last week’s releases by Statistics Canada showing a decline in third-quarter GDP and an uptick in the unemployment rate sealed the deal.
Nevertheless, the announcement made it clear that the bank is not satisfied with the pace at which inflation is falling, stressed that the fight against inflation is not yet won, and stated that they stand ready to boost rates again if inflation numbers disappoint.
It’s clear that the bank is concerned about inflation expectations becoming de-anchored from the 2-per-cent target. They continue to prioritize re-establishing any…
C.D. Howe Institute Monetary Policy Council to Bank of Canada: Hold Overnight Rate at 5.00 Percent until January, Cut to 4.00 Percent by End of 2024
November 30, 2023 – The C.D. Howe Institute’s Monetary Policy Council (MPC) recommends that the Bank of Canada maintain its target for the overnight rate, its benchmark policy interest rate, at 5.00 percent at its next announcement on December 6th. The MPC further recommends that the Bank keep the target at 5.00 percent in January 2024, before reducing it to 4.75 percent by June of 2024 and to 4.00 percent by December of 2024.
The MPC provides an independent assessment of the monetary stance consistent with the Bank of Canada’s 2 percent inflation target. William Robson, the Institute’s CEO, chairs the Council. Council members make recommendations for the Bank of Canada’s upcoming interest-rate announcement, the…
Rise, Stall, or Fall: The Key Drivers Behind Inflation’s Path in Canada
Inflation surged in most advanced economies in 2021 and 2022 before easing considerably in 2023. In Canada, the headline Consumer Price Index (CPI) rose 8.1 percent in the year ending June 2022, then declined to 2.8 percent by June 2023 – the most pronounced acceleration and deceleration in the pace of price changes in decades. Canada’s […] Kronick, Ambler – No More Rate Hikes. So What’s Next?
To: Inflation Watchers From: Jeremy M. Kronick and Steve Ambler Date: October 31, 2023 Re: No More Rate Hikes. So What’s Next? The Bank of Canada once again held its policy rate at 5 percent last week. After two months of disappointment, with the annual change in the consumer price index (CPI) ticking up in July and […]Beyond tightening, where is the end point of the Bank of Canada’s monetary policy? – Globe and Mail
The Bank of Canada once again held its policy rate at 5 per cent on Wednesday, as expected.
After two months of disappointment, with the annual change in the Consumer Price Index ticking up in July and August, inflation resumed its descent in September, falling to 3.8 per cent from 4 per cent. That, plus weak economic numbers, made it practically certain – confirmed by the expectations of financial markets – that the central bank would hold.
The real questions concern the bank’s end point for monetary policy in the medium term and what that means for Canadians.
The bank is probably at the end of its tightening cycle. But this doesn’t mean interest rates are coming back down to where they were before…
Balance of data shows rate hikes are starting to work: C.D. Howe’s Jeremy Kronick
Jeremy Kronick, Associate Vice President and Director of the Centre on Financial and Monetary Policy at the C.D. Howe Institute, tells BNN Bloomberg that the Bank of Canada should hold rates at their current level tomorrow, but there’s also a chance they might hike again in this tightening cycle. He points to the job market and wage growth as areas of concern. Janet Cosier – Central Bank Risk Management in Times of Turbulence
From: Janet Cosier To: Bank of Canada Watchers Date: October 10, 2023 Re: Central Bank Risk Management in Times of Turbulence Over the last year, the world’s central banks have started to report negative equity positions, a product of sharply increasing interest rates that have created mismatches on their balance sheets. In many instances, these mismatches have arisen […]Losses, Risks and Reputation: Bolstering the Bank of Canada for the Road Ahead
Central banks around the world, including the Bank of Canada, are dealing with a hangover from the quantitative easing (QE) policies undertaken during the pandemic. Ensuing inflation and interest-rate hikes have created balance sheet mismatches and net interest losses. As an example, the interest rate the Bank of Canada earns on its bond portfolio is […]