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Effect of rate hikes will be 'powerful:' Poloz

Darpan News Desk The Canadian Press, 24 Nov, 2022 11:15 AM
  • Effect of rate hikes will be 'powerful:' Poloz

OTTAWA - The full effects of interest rate hikes have yet to be felt — and will be "even more powerful" than many anticipate, former Bank of Canada governor Stephen Poloz says.

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

"Does anybody here think the sensitivity of the economy to interest rate movements is less today than it was five or 10 years ago?" Poloz asked. "I think (it) is more sensitive today than it was before."

Poloz estimates annual inflation will fall to about four per cent on its own as external factors, such as higher commodity prices, ease. Statistics Canada's most recent annual inflation rate sat at 6.9 per cent in October, the most recent available data.

He said policy action will need to do the rest of the work to get inflation back down to the central bank's two per cent target.

"I think that the actions that are being taken to get us there will turn out to be even more powerful than a lot of people think," Poloz said.

Though high inflation has persisted longer than the Bank of Canada's initial projections, Poloz defended the use of the word "transitory" to describe inflation pressures, noting that international contributors to inflation such as supply chain delays are already dissipating.

"In other words, the part of inflation that is externally driven, really is transitory. It's OK to use the word transitory," he said.

However, the former central bank governor says it takes time for that development to be reflected in the annual inflation rate.

Bank of Canada governor Tiff Macklem notably called inflation "transitory" — meaning temporary — when it first started rising.

Since then, he's backed away from that characterization and has emphasized that the domestic economy is overheated and inflation won't return to target without action from the central bank.

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