BoC sees economic progress limited by ‘setbacks’
Canada is still adjusting to domestic and international shocks to the economy, from lingering uncertainty caused by the global financial crisis eight years ago, to the more recent plunge in oil prices and the extreme uneasiness over record-high costs of housing in the country’s two biggest cities.
Speaking Thursday at the University of Quebec in Trois-Rivières, Bank of Canada senior deputy Carolyn Wilkins acknowledged that Canada is still “going through important and complex adjustments.”
“There has been progress, but also a few setbacks,” Wilkins said in a speech titled Economic Trends and Monetary Policy. “With recent setbacks in exports, the risks to the profile for inflation have tilted somewhat to the downside.”
Adding to concerns coming out of the global financial crisis in 2007, there have been “headwinds” from the European debt crisis, U.S. fiscal deficit consolidation and, more recently, the U.K.’s vote in favour of the leaving the European Union, Wilkins said.
“These events have all undermined confidence.”
More directly, the deputy governor said Canada is still dealing with the huge economic effect of the global oil-price collapse — an event that pushed the country into a downturn in the second quarter of this year.
Hardest hit were resource-reliant provinces, such as Alberta, where the recession still lingers.
As well, Wilkins said, “we are monitoring very closely the high level of household indebtedness and housing sector activity.”
Ottawa this week moved to tighten mortgage requirements and other measures to help cool the housing markets, particularly in Vancouver and Toronto.
“We think that, over time, the measures announced by the federal government on Monday will help mitigate risks to the financial system posed by household imbalances.”
The central bank’s over-arching mandate is to attain two-per-cent inflation, the midway point of its comfort range of one to three per cent — with the adjustment lever being the bank’s trendsetting overnight borrowing cost for commercial banks.
The latest data show the annual rate of price gains is just above one per cent, with the bank’s current interest rate at 0.5 per cent — a level that has been unchanged since July 2015.
Policy-makers will announce their next rate decision on Oct. 19, which will be accompanied by their Monetary Policy Report, a quarterly publication of domestic and global economic forecasts.
“The bank is providing monetary stimulus in order to meet its inflation target,” Wilkins told the university audience, in what will be the final speech by a policy-maker ahead of the rate decision. “The adjustments are clearly underway. But it will take time before the economy has fully adjusted to the oil price shock, (as) the U.S. economy strengthens and the effects of fiscal stimulus take hold.”
TD economist Brian DePratto said “housing policy announcements earlier this week may provide further scope for the Bank of Canada to ease rates by providing some offset to any housing market impacts.
“On balance, however, we remain of the view that the Bank of Canada is likely to hold rates on Oct. 19.”