A chief market strategist says the Bank of Canada is late in bringing interest rates lower and says policy is driving inflation above the two per cent target.
On Wednesday, the Bank of Canada held its key policy rate for the fifth consecutive meeting at five per cent. Bank of Canada Governor Tiff Macklem also added in a speech that it is “too early to consider lowering the policy rate.”
Jim Thorne, the chief market strategist at Wellington-Altus Private Wealth, said in an interview with BNN Bloomberg on Wednesday that policy is now driving inflationary pressures. Specifically, he mentioned carbon taxes, the impact of Ottawa’s immigration policy on rental prices and mortgage interest costs rising by a record 28.5 per cent in 2023.
ECONOMICS LANDING PAGE“All of those are policy-induced inflation. We learn in advance macroeconomics, what you're supposed to do is take that out and ignore it. And if you do, we're in deflation in Canada,” Thorne said.
“So it's really unfortunate that Tiff Macklem, who knows this, is basically willing to ignore the fact that there is a unique time, a very nuanced time where rate hikes cause inflation and therefore rate cuts cause disinflation. And the Bank of Canada should be cutting rates to bring inflation down.”
Beata Caranci, the chief economist at TD Bank, said in an interview with BNN Bloomberg on Thursday that the Bank of Canada is “still trying to judge the data” and doesn’t yet have a high enough degree of confidence to bring interest rates lower.
Ahead of interest rate decisions in June and July, she said the central bank will rely on “make or break” jobs and inflation data to determine if it can lower interest rates in the early summer months.
Thorne pointed to rising mortgage delinquency rates in Ontario that rose by 135.2 per cent compared to the previous year in the fourth quarter of 2023 and business insolvencies in January that rose by 129.3 per cent year-over-year.
“The private sector is starting to buckle under the force of the Bank of Canada having their foot on the throat of the private sector,” he said.
‘Long and variable lags’
According to Thorne, current levels of economic growth are a “mirage created by fiscal policy.”
“We forget this thing called long and variable lags. If the Bank of Canada cut today, it would take 14 months for us to feel it,” he said.
If the Bank of Canada moves to lower interest rates in June or July, Thorne said it would take until about 2025 for the Canadian economy to feel the effects of the policy shift.
“They're late and they should be cutting and they're not. Which is very concerning,” he said.
Caranci said that the Bank of Canada has traditionally “been a bit more forward-looking” relying on forecast models to determine the trajectory of inflation over a 12 to 18-month period.
“But this central bank is showing more hesitation in putting a lot of faith in the forecasts because we've had so many misses, not just by them, by us on the street and others, over the last three years, because of all the distortions in the data from supply chains and the pandemic disruptions and so forth,” she said.
“So they are really data dependent.”
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2024-03-07 18:44:34Z
CBMib2h0dHBzOi8vd3d3LmJubmJsb29tYmVyZy5jYS9jaGllZi1tYXJrZXQtc3RyYXRlZ2lzdC1zYXlzLWJvYy1zaG91bGQtY3V0LWFtaWQtcG9saWN5LWluZHVjZWQtaW5mbGF0aW9uLTEuMjA0NDAzN9IBAA
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