The long-term effects of interest rate hikes will be “stronger” than people think: Poloz


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dated: 2022-11-24 18:52:44 .

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OTTAWA – The full impact of the rate hike has yet to be felt – and it will be “even stronger” than many expect, former Bank of Canada Governor Stephen Poloz says.

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At a conference in Ottawa hosted by Western University’s Ivey Business School, the former governor warned that today’s economy is more sensitive to interest rates than it was 10 years ago.

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“Does anyone here think that the economy is less sensitive to interest rate movements today than it was five or ten years ago?” Poloz asked. “I think (it) is more sensitive today than it was.”

Poloz estimates that annual inflation alone will fall to around 4 percent as external factors, such as higher commodity prices, ease. Statistics Canada’s latest annual inflation rate was 6.9 percent in October, the most recent data available.

He said policy measures must do the rest of the job to bring inflation back to the central bank’s 2 percent target.

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“I think the actions that are being taken to get us there will prove to be more effective than many people think,” Poloz said.

Although high inflation has persisted longer than the Bank of Canada’s original forecast, Poloz defended using the word “temporary” to describe inflationary pressures, noting that international factors contributing to inflation, such as supply chain delays, are already fading.

“In other words, that part of the inflation that was triggered from outside is really transitory. It’s okay to use the word temporary,” he said.

But it will take time for this to be reflected in the annual inflation rate, says the former central bank governor.

Bank of Canada Governor Tiff Macklem specifically described inflation as “temporary” — meaning temporary — when it was just starting to rise.

He has since departed from that characterization, stressing that the domestic economy is overheating and that inflation will not return to target without central bank action.

This Canadian Press report was first published on November 24, 2022.


The long-term effects of interest rate hikes will be “stronger” than people think: Poloz

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