{"id":40235,"date":"2023-11-02T00:22:52","date_gmt":"2023-11-02T00:22:52","guid":{"rendered":"https:\/\/www.pantheregroup.com\/2023\/11\/02\/bank-of-canadas-macklem-says-neutral-rate-likely-drifting-higher\/"},"modified":"2023-11-02T00:22:52","modified_gmt":"2023-11-02T00:22:52","slug":"bank-of-canadas-macklem-says-neutral-rate-likely-drifting-higher","status":"publish","type":"post","link":"https:\/\/www.pantheregroup.com\/2023\/11\/02\/bank-of-canadas-macklem-says-neutral-rate-likely-drifting-higher\/","title":{"rendered":"Bank of Canada’s Macklem says neutral rate likely drifting higher"},"content":{"rendered":"
\n<\/p>\n
\n
Article content<\/h2>\n
Bank of Canada governor Tiff Macklem said the neutral rate of interest is likely rising, and he wasn\u2019t fully confident in the central bank\u2019s decision to leave their estimate of the measure unchanged earlier this year.<\/p>\n
The neutral rate \u2014 a theoretical level of borrowing costs that neither stimulates nor restricts the economy \u2014 may be gradually drifting higher, Macklem told the Senate economy committee in Ottawa on Wednesday.<\/p>\n<\/div>\n
\n
Article content<\/p>\n
\u201cI think there are some reasons to believe it\u2019s more likely that the neutral rate is higher than lower,\u201d Macklem said, adding that the future impacts of higher fiscal deficits, aging societies and larger investments in renewable energy need to be considered, not just historical evidence.<\/p>\n
Macklem also admitted he \u201cwasn\u2019t totally comfortable\u201d after policymakers left unchanged their estimate for the range of the nominal neutral rate in Canada \u2014 between two per cent and three per cent \u2014 in April after the central bank\u2019s annual review.<\/p>\n
The comments suggest the Bank of Canada may view interest rates, which are currently at five per cent, the highest level in 22 years, as less restrictive, or having less bite, than previously believed.<\/p>\n
If the neutral rate is drifting up in the background \u201cwe\u2019ll think monetary policy is tighter than it really is,\u201d Macklem said, and the resulting higher-than-expected inflation would mean interest rates would have to move a \u201ca little bit higher than otherwise to get inflation back to target.\u201d<\/p>\n\n