We’re still in negative real interest rate territory: Former BoC Deputy Governor John Murray
One former Canadian central banker said interest rates may need to go even higher after the Bank of Canada on Wednesday moved rates to its highest level in 15 years while signalling a potential pause ahead.
“I think there's a good chance that more will need to be done by way of interest rate increases,” said John Murray, senior fellow at the C.D. Howe Institute and a former deputy governor at the Bank of Canada, in an interview with BNN Bloomberg Wednesday.
The Bank of Canada increased interest rates Wednesday by 25 basis points, bringing the overnight policy rate to 4.5 per cent. The rate hike marks the eighth consecutive increase from the Canadian central bank.
The rate increase was also coupled with guidance from the Bank of Canada that it will hold its policy rate at 4.5 per cent if the economy matches its monetary policy outlook.
Murray said his concerns about future rate decision were rooted as core inflation figures have not moved significantly when compared to last year. A measure of core inflation tracked by the Bank of Canada was reported at 5.3 per cent in December, according to Statistics Canada.
However, Murray said these stop-and-start rate hikes could deliver “more pain than might otherwise be necessary” when compared to a more steady course. “I just worry about a process that may in the end be a little too ‘stop-go,’” he said.
The 25-basis-point rate hike by the Bank of Canada was the correct move and that a failure to make that move would be concerning, according to Murray.
“I worry that if they [the Bank of Canada] didn't raise on this occasion, it would give too much comfort to markets, households and businesses,” he said.
While the policy rate increase was appropriate, Murray said he is apprehensive about the central bank’s posture on pausing its rate hike cycle.
“If economic developments evolve broadly in line with the [Monetary Policy Report] outlook, the Governing Council expects to hold the policy rate at its current level while it assesses the impact of the cumulative interest rate increases,” the Bank of Canada said in a statement Wednesday.
Murray said he anticipated the central bank would leave more uncertainty in its guidance.
“This seemed a little definite for me and given where inflation is, I’m worried that the market might run with it further than it should,” Murray said.
of the cumulative interest rate increases,” the Bank of Canada said in a statement Wednesday.