John Murray on BNN – We are Still in Negative Real Interest Rate Territory
John Murray, Senior Fellow at the C.D. Howe Institute and a former Deputy Governor at the Bank of Canada, tells BNN Bloomberg the Bank of Canada’s guidance following its 25 basis points rate hike was too explicit about prospects for a pause, and that the markets might run with it further than they should. He believes there is still a fair amount of stimulus in the economy and that more interest rate hikes could be needed as year-over-year core inflation is essentially unchanged since last year. He says much of the inflation drop may be due to lower energy prices and supply chain easing, and could prove short-lived.
C.D. Howe Institute Monetary Policy Council Calls for Bank of Canada to Hold Overnight Rate at 4.25 Percent
January 19 – The C.D. Howe Institute’s Monetary Policy Council (MPC) recommends that the Bank of Canada hold its target for the overnight rate, its benchmark policy interest rate, at 4.25 percent on January 25th. The Council further recommended that the Bank raise the overnight rate target to 4.50 percent at the following announcement in March and hold it there through July before lowering it back to 4.25 percent by January 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…
Looking Ahead with Andrew Coyne
What will 2023 bring for inflation, the housing market and healthcare? In episode one of the C.D. Howe Institute Podcast’s fifth season, the Globe & Mail’s Andrew Coyne joins host Michael Hainsworth for insight into the year ahead.
Reversal of Fortunes: Rising Interest Rates and Losses at the Bank of Canada
The Bank of Canada is responding to high inflation by increasing its policy interest rate. With the Bank having recently expanded its balance sheet by buying government bonds and increasing its liabilities to financial institutions, higher policy rates have immediate implications for the Bank of Canada’s own finances. The bonds were largely purchased from financial […] The Bank of Canada’s millions in balance-sheet losses are only the beginning – Globe and Mail Op-Ed
While the full effects of the Bank of Canada’s rate hikes are not yet known, there is an immediate effect on the central bank’s own finances: growing interest expenses and large financial losses. The bank’s recently released third-quarter financial results showed that for the first time, the bank incurred a net loss: $511-million. This is only the beginning.
This matters, especially at a time of heightened political attention toward monetary-policy issues.
The bank’s revenue is largely derived from its asset holdings, which mainly included Government of Canada bonds and treasury bills. Prior to the COVID-19 pandemic, these bond holdings cost the bank very little, and their returns normally exceeded bank expenses…
Jeremy M. Kronick – Make the Bank of Canada’s Job Easier
From: Jeremy M. Kronick To: Canada’s Governments Date: January 9, 2023 Re: Make the Bank of Canada’s Job Easier When every party understands its role, better public policy ensues. For Canada’s monetary and fiscal authorities, this means central bankers ensure a stable currency value and governments create conditions for strong economic growth. Right now, however, inflation is as high […] In fighting inflation, governments aren’t making the Bank of Canada’s job any easier – Globe and Mail Op-Ed
When everyone understands the role they play, this leads to better public policy. For our monetary and fiscal authorities, this means central bankers ensuring a stable value for the currency they oversee, and governments creating the conditions for strong economic growth.
Unfortunately, we lack that in Canada right now, with inflation as high as it has been in 40 years, and an economy potentially heading toward a recession. The Bank of Canada is working hard to bring down inflation. If governments were indeed boosting the economy’s potential, it would make the bank’s job a heck of a lot easier.
With mandates that target inflation – and ones that target maximum sustainable employment as well, such as that of…
Ambler, Kronick – The Bank of Canada Gets Its Communication Right
From: Steve Ambler and Jeremy M. Kronick To: Bank of Canada Governing Council Date: December 22, 2022 Re: The Bank of Canada Gets Its Communication Right The Bank of Canada’s latest interest rate boost, to 4.25 percent, was unsurprising. The real news was the change in the tone of its announcement. Further tightening will “depend on the data,” […]What’s for Christmas Dinner? Inflation
Inflation is everywhere. Christmas dinner is no exception. Prices rose across the board between October 2020 and 2021 and most festive dinner staples accelerated further one year later to October 2022. Side plates cost more. Bread and butter rose in cost by 17 and 20 percent year-over-year to October 2022. Fresh vegetables and potatoes saw […] Promises, promises: Bank of Canada gets its communications right – Globe and Mail Op-Ed
Last week, the Bank of Canada raised its policy interest rate by 50 basis points, to 4.25 per cent, in line with market expectations of either a 25- or 50-basis-point increase. No surprises there.
The real news was the change in the tone brought by the announcement. Of late, the bank has repeatedly warned Canadians that more rate hikes were coming. Now, further tightening will “depend on the data.”
We think this is a welcome development – and not just because it means the potential end of the tightening cycle, but because the bank gives itself more wiggle room in a very uncertain environment.
More definite statements can be problematic. Back in the second half of 2020, with the overnight rate at its lower bound, the…
Crossed Wires: Does Fiscal and Monetary Policy Coordination Matter?
The onset of the pandemic saw a high degree of coordination between our monetary and fiscal authorities. The Bank of Canada lowered its overnight rate to its effective lower bound and engaged in quantitative easing, governments pumped in stimulus and support programs, and the Office of the Superintendent of Financial Institutions (OSFI) lowered its domestic […] Higher interest rates will cause a recession – how do we pick up the pieces? – Globe and Mail Op-Ed
While many have challenged the pace of the Bank of Canada’s interest-rate hikes, their likelihood of success and the extent to which further increases are merited, it has already become clear that, regardless, a recession is imminent. And while it remains to be seen how deep and how long that recession will be, there is no question it will hurt some more than others.
Will governments be there to pick up the pieces and manage the consequences of higher interest rates? If so, how, and in what ways can they help, given their rather precarious fiscal position, with Ottawa carrying $1.1-trillion in debt?
Among the many things that concern us are the distributional impacts of the looming downturn – some groups are…