"As long as the factors leaning on growth persist, a policy rate below neutral would be required to maintain inflation sustainably at target."
- Carolyn Wilkins, Bank of Canada Deputy Governor
Deputy Governor of the Bank of Canada, speaking in Toronto on Monday, said that the regulator will most likely keep maintaining interest rates at low level for a prolonged period of time, even when economy returns to sustainable growth. The Great Recession left a number of structural problems in the economy, including falling employment, tougher regulation of the financial sector and high level of savings, meaning that consumers are still cautious in their behaviour and are carefully spending free funds.
Giving a speech for the first time since becoming the Deputy Governor in May, Ms. Stevens could not pass by the inflation topic. As long as this indicator is below the 2% target in Canada, interest rates will remain low, however, in the medium-term they may stabilise around the 3-4% neutral mark, which is still around 1.5% below the long-term average. Economists expect the Bank of Canada to start acting not earlier than its British and American colleagues. While the Bank of England set the neutral interest rate at 2.5% and the Federal Reserve put it around 3.75%, these levels are well below the-crisis average key rates. The global economic recovery is taking place slower than forecasted and central banks around the world confirm that they now have a dual mandate, as besides inflation targeting they have to follow unemployment data in order to construct the monetary policy course.
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