Bank of Canada Governor Stephen Poloz said in an interview over the weekend that Canadians can expect that “easy money” will remain available for some time yet.
Speaking to Bloomberg Television from the World Economic Forum in Davos, Switzerland, Governor Poloz said that the “‘end of easy money’ is a little too simple,” and that “It’s likely that money is going to remain easy for some time yet” because “economies are still working their way through a lot of underlying stresses.”
Central banks are slowly moving away from the emergency stimulus put in place after the 2008 financial crisis, and leaders gathered for the World Economic Forum have combined optimism with caution in their assessment of the current outlook. The International Monetary Fund forecasts global growth accelerating to the fastest pace in seven years in 2018.
In Canada, officials have raised interest rates three times since mid-2017, including a hike just last week, which took the benchmark interest rate to 1.25%. Governor Poloz has been trying to gradually bring rates back to more normal levels amid strong growth and a surge in employment, without triggering an unwanted economic slowdown. He told Bloomberg Television that there’s still “considerable” slack in Canada’s labour market.
Governor Poloz added that companies are in an expansion phase and policy makers don’t want higher borrowing costs to crimp confidence or hiring plans. He said that concerns about the future of the North American Free Trade Agreement (NAFTA) are weighing on investment decisions at present.
“What happens in this late stage in the cycle is that investment becomes the principle driver of growth, and that builds more capacity, pulling that capacity out of the labour market and raising potential output,” he said. “We’re watching those ingredients as they unfold, and we can see that it’s underway.”
Asked about central banks’ room to manoeuvre, Governor Poloz pointed out that the neutral rate of interest is probably lower now than in the past due to the debt overhang.
“The economy finds a new place where interest rates have much more effect than in the past,” said Governor Poloz. “That’s one of the things we have to learn by probing, by moving our way along and assessing how things are evolving.”