Speaking a day after we decided to hold interest rates steady, Deputy Governor Timothy Lane explained that Canada’s economy remains resilient. Still, the economy is not immune to the ongoing effects of a global slowdown and trade uncertainty.
Deputy Governor Lane talked about the different paths taken by monetary policy-makers in Canada and the United States since the global financial crisis in 2008–09.
Policy rate unchanged
We decided to hold the policy rate steady at 1.75 percent.
Different paths for different economies
Canada and the United States both drastically cut interest rates during the global financial crisis to stimulate their economies.
After the initial shock, we took different approaches to getting our economies back on track. This is because the impact of the crisis and its aftermath was different in each country.
While Canada initially rebounded more quickly from the crisis, in 2014–15 we were set back by a collapse in oil prices. In contrast, the US economy continued to improve. To cushion the blow to our economy, the Bank of Canada cut its policy rate twice.
The US Federal Reserve cut the federal funds rate three times in 2019. With inflation on target here, the Bank of Canada has kept its rate steady.
There is no reason for the Bank of Canada to move in step with the Fed. On the contrary, the experience of the past decade shows that Canada and the United States have followed different roads, reflecting differences in our economic conditions.”
The road ahead remains uncertain
Trade conflicts and uncertainty continue to affect the world economy, although there are some signs of stabilization.
Here at home, these issues have driven down exports. Business investment has shown signs of improvement recently, but it’s too early to say whether this will continue. Consumer spending and housing are contributing to growth. So is the job market, especially in the service sector.
However, Canadians have accumulated a lot of household debt. We’re watching this closely because such a vulnerability could make a bad situation worse in the event of a shock.
Our October projection appears to be intact
The economic outlook from October’s Monetary Policy Report remains on track. Canada’s economy is operating near capacity, and inflation is on target. The Bank will update its outlook in January.
Looking ahead, our interest rate decisions will be guided by our continuing assessment of the economic impact of trade conflicts. We will also be watching the sources of resilience in the Canadian economy—notably consumer spending and housing activity.”