- G10 Markets
- Fixed Income
- Foreign Exchange
- Emerging Markets
- MNI Research
- Global Macro
- Political Risk
- About Us
Exclusive interviews with leading policymakers that convey the true policy message that impacts markets.LATEST FROM POLICY:
- G10 MarketsG10 Markets
Real-time insight on key fixed income and fx markets.Launch MNI PodcastsFixed Income FI Market AnalysisCentral Bank PreviewsFI PiEurozone/UK Bond Auction CalendarEurozone/UK T-bill Auction CalendarUS Treasury Auction Calendar US$ Credit Supply Pipeline Fixed Income Technical Analysis EGB Issuance, Redemption and Cash Flow Matrix Gilt Week Ahead
- Emerging MarketsEmerging Markets
Real-time insight of emerging markets in CEMEA, Asia and LatAm region
Real-time insight of oil & gas markets
Reporting on key macro data at the time of release.LATEST FROM DATA:
- MNI ResearchMNI Research
Actionable insight on monetary policy, balance sheet and inflation with focus on global issuance. Analysis on key political risk impacting the global markets.Global Macro Central Bank PreviewsCentral Bank ReviewsBalance Sheet AnalysisInflation InsightGlobal IssuanceEurozoneUKUSOverviewGlobal Issuance CalendarsEZ/UK Bond Auction CalendarEZ/UK T-bill Auction CalendarUS Treasury Auction Calendar
- About Us
Real-time Actionable Insight
Get the latest on Central Bank Policy and FX & FI Markets to help inform both your strategic and tactical decision-making.Free Access
MNI INTERVIEW: BOC Must Avoid Policy Shock Or Risk Downturn
The Bank of Canada will likely continue carefully telegraphing modest rate hikes to avoid derailing the recovery and the government will also give a steady message by renewing the central bank’s 2% inflation target this month without any additional goals, a former top government adviser told MNI.
Robert Asselin said the potential for the Bank of Canada to lift record-low interest rates about half a dozen times over the next few years -- as some investors expect -- could roil indebted consumers and markets. Asselin is Vice President at the Business Council of Canada, which represents CEOs of major companies, and was policy director for former Finance Minister Bill Morneau who oversaw the last BOC mandate renewal.
Current Finance Minister Chrystia Freeland is due in coming days to renew the five-year inflation targeting agreement that lapses this month with Governor Tiff Macklem. Asselin echoed concerns about the government giving the BOC more to do with inflation that is at the fastest pace since 2003 at nearly 5%. Other options discussed have included adding a dual mandate on jobs and targeting an average inflation rate.
“If they go for a dual mandate with maximum employment part of the target, I think that would throw the market off, but I don’t think anyone expects it,” Asselin said. Doing it now “especially in this very unsettled time, it would be very risky.” Prime Minister Justin Trudeau told lawmakers Wednesday the mandate will be renewed soon, but he failed to echo earlier comments from Freeland that multiple views have been laid out in public discussions.
UNDOING THE RECOVERY?
The BOC on Wednesday held a record low 0.25% interest rate and said conditions for a hike should be in place in the middle quarters of next year. Most economists see a move in April but market trading shows bets on a faster move and perhaps five hikes next year.
“That’s a lot, and you could actually create a recession out of it,” Asselin said of some market bets.
“This will be a big test of monetary policy, on how they land this ship,” he said. “Communications, they have to telegraph very clearly, which I think they did” on Wednesday, he said, adding “I think the Bank will do its trick” on communications from here.
Pulling back deficit spending would be a better option, as some families are flush with cash from relief checks while others bid up record home prices and carry big debt loads, he said. Dialing back stimulus in Freeland's budget update next week would also curb the danger of fiscal and monetary policies stretching the economy in opposite directions, he said.
FISCAL TIGHTENING IS SAFER
Government finances also face risks from complacency, with rising interest rates, the unwinding of central bank bond purchases, rolling over new debt and the potential for slower long-term growth, he said. Unlike sudden austerity after 2008 that was blamed for slowing the recovery, this rebound is at risk from overheated demand and supply restrictions, Asselin said.
“Our economy is already geared to consumption, real estate, things that aren’t necessarily productive. We need to shift to things that will make our economy more resilient over time, especially on energy transition, the supply side of it including labor, we’re going to need a lot of engineers."
Making big investments to boost supply has also become more difficult because legitimate objections around climate change or the rights of indigenous peoples are often drawn into long reviews with no clear outcome. “It’s time for government to pivot to longer-term growth, as opposed to this short-term crisis mode that we’ve been in for the last two years.”
To read the full story
Sign up now for free access to this content.
Please enter your details below and select your areas of interest.
Why Subscribe to
MNI is the leading providerof intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.
Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.