The Globe and Mail reports in its Friday edition that Bank of Canada governor Stephen
Poloz says the next monetary policy
report (MPR) in October
will delve into where the
"new normal" for interest rates
will be. The Globe's David Parkinson writes that Mr. Poloz says the normalized or
"neutral" level for rates will be lower
than the previous historical norm. The Globe pegs the historical norm at 4 per cent. Mr. Poloz, however, was mum on what a normalized interest rate would be, saying only that the rate will be announced at the next MPR.
Mr. Parkinson notes the theme across
the developed-world economies is that growth potential is no longer
what it once was.
Unless Canada can accelerate
labour productivity growth
(something that has proven
elusive) to make up for the labour
force slowdown, this means less
economic growth potential.
Mr. Parkinson notes the
slower growth that leads to lower
neutral rates will also mean slower
growth in incomes. So while
borrowing may stay cheap, consumer
capacity to service more
debt will be contained, too, explains The Globe.
It implies a long-term headwind
for savings, as a long-term
lower rate environment will limit
returns on investments.
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