News Review: Bank of Canada: 'we're Dealing with Lower for Longer, Not Lower Forever'

BANK OF CANADA: 'We're dealing with lower for longer, not lower forever'

The article discusses the announcement made by the Bank of Canada that it was to keep interest rates low for a longer than expected period, as a simulative monetary policy is needed to push the economy closer to full capacity. According to the Bank’s governor Stephen Poloz, the country’s sluggish economic growth is mainly due to declining oil prices, weak exports and business spending. Therefore, in addition to monetary policy, the governor called for the government’s stimulus spending program (e.g., infrastructure projects), additional structural reform measures, encouragement of business investment and further trade liberalisation to boost economic output. Although the Bank remained concerned about rising mortgage debt, it also expressed confidence that regulatory changes were limiting home loans to those able to finance them. Hence, the Bank’s decision to keep interest rates low won’t be altered over fear of fueling further household debt.

Related to our class discussion, Bank of Canada is the central bank in Canada. It acts as the Canadian government authority and is responsible for the country’s monetary policy and financial stability. The central bank has been described as the “Lender of last resort” since it implements monetary policy by targeting the overnight lending rate at which it is willing to lend short-term funds to the chartered banks. Based on the quantity theory of money, maintaining a low overnight rate will increase consumption and create a ripple effect of increased spending throughout the economy. Additionally, low interest rates will also lower the exchange rate. Extra revenue can thus be generated by stimulating exports, as a weaker domestic currency can make Canada’s exports more competitive, especially as a major oil exporter. Like mentioned in class, however, it takes time for monetary policy to generate noticeable effects, not to mention the fact that the struggle of the Canadian economy to gain traction in a slow-growth