Article written by David Parkinson, The Globe and Mail
Bank of Canada governor Tiff Macklem confirmed that the central banks use of record-low interest rates to fight the ongoing pandemic has heightened financial risk across the country. He warned that “the next few months will be crucial” in determining how well Canadian households and businesses weather the storm as a result of the crisis.
Macklem acknowledged that even before the pandemic, some businesses and households were carrying heavy debt loads while housing markets looked overvalued. Pressures which may soon re-emerge as emergency support programs dwindle.
In March, the Bank of Canada cut its key interest rate to 0.25% from 1.75% (this was before Macklem was in charge).
Once Macklem took over in June, the bank pledged to maintain the rate at its ultra-low level until “economic slack is absorbed so that the 2-per-cent inflation target is sustainably achieved. This return to full economic capacity may not emerge until 2022.
During the Q/A period, Macklem was asked about negative interest rates. He reiterated that the central bank “is not actively discussing” resorting to negative interest rates in the event of another serious economic shock (such as a second wave of COVID 19).