Is it time to consider a dual mandate for the Bank of Canada?
By John Turley-Ewart
On Wednesday, the governor of the Bank of Canada, Tiff Macklem, is widely expected to reduce the central bank’s policy interest rate for the third consecutive time. For the two-million-plus Canadians renewing mortgages this fall and next year — and those tapping credit lines to keep up with the rising cost of living — a rate cut offers some relief, but not enough.
Even if the Bank of Canada proves aggressive and cuts its key rate by 50 basis points on Sept. 4, from 4.5 per cent to four per cent, it will only dull the pain but not cure the hardship facing many.
In Economics 101, students learn changes to monetary policy (increases or decreases in central bank rates) take a year or two before fully working their way through the real economy — that is, to the day-to-day lives of individuals, measured by their ability to afford necessities, find and hold onto employment and secure adequate wages that support the standard of living to which they aspire.
Canadians are experiencing that Economics 101 lesson in real time.
Outstanding credit card balances are the highest on record, averaging $4,300. Non-mortgage delinquencies are on the rise, surpassing levels from the early days of the pandemic in 2020. Provisions for credit losses at Canadian banks are mounting.
Despite recent easing of the Bank of Canada’s policy rate, it remains, according to National Bank, “one of the most restrictive in a generation.”
The Bank of Canada’s rapid interest rate increases started in March 2022 and ended in July 2023. Rates went from .25 per cent to five per cent and stayed there until this June. Inflation fell from its peak of 8.1 per cent in June 2022 to 2.7 per cent as of this May.
Now we are paying the price.
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