BoC’s Poloz: Rates would not go back to where they were 20 or 30 years ago, will stay low

Reuters reports that the Bank of Canada Governor Stephen Poloz on Thursday said the world was in an era where interest rates were probably going to stay low and would not go back to where they were 20 or 30 years ago.

Poloz, speaking to financial journalists ahead of his June 3 retirement, also said he felt some of the talk about the damage that could be done by the coronavirus outbreak was “a little too dire” and predicted the bank’s best-case scenario for recovery was still possible.

The Bank of Canada – which targets 2% inflation – has slashed its key overnight interest rate three times to a record low 0.25% since the crisis started and markets do not expect another move before next year.

‘We are in an era where interest rates are probably going to stay low, for demographic reasons and economic growth reasons. I don’t know how low really but they’re just not going to be like where they were 20 years ago or 30 years ago,” Poloz said. “So central banks will have less room to maneuver.’

Canada’s overall inflation rate turned negative in April and Poloz said ‘if it’s going to be underperforming then we’re going to be easier for longer. That’s the essence of the (2%) target and that’s why it’s there’,

– Reuters reported. 

Key comments

We are in an era where interest rates are probably going to stay low.

Rates are likely to stay low because of demographic and economic growth reasons.

Don’t know how low rates will be but they won’t be like they were 20 or 30 years ago; central banks therefore will have less room to maneuver.

If inflation is going to be underperforming “then we’re going to be easier for longer”.

Some of the talk about damage that could be done by the crisis are “a little too dire, it’s a little overblown”.

We are still tracking to the bank’s best-case scenario outlined in last monetary policy report; says he is relatively optimistic “compared to what the talk is”.

People are too preoccupied with gdp as the core variable around which everything revolves; really don’t think it will be that hard to get back up the hill after the crisis.

GDP is plunging because economy has been shut off, not because of behavioral factors; we should see a very rapid return of production once shutdowns are over.

Sees really big question mark over how much debt will go up as a result of extra spending measures to tackle coronavirus outbreak.

Expects surge in creation of new companies once outbreak is over.

Meanwhile, on the currency front, USD/CAD has been capped on the bid for the US session, turning away from the realms of the 1.40 handle prior to the comments. Instead, the cross is testing the support of 1.3940 and bears are making headway. For an overall outlook, see here: USD/CAD testing critical support line, bulls gearing up for an onslaught