The BoC did fine early on, but dropped the ball at the pandemic's mid-point: DesjardinsGroup cdnpoli economy recession
In the spirit of the end of the school year and start of summer vacation, Desjardins opted to grade the Bank of Canada on its pandemic-era response — and let’s just say the central bank didn’t make the honour roll., authored by Desjardins Managing Director and Head of Macro Strategy Royce Mendes and Associate of Macro Strategy Tiago Figueiredo, states that the Bank of Canada “deserves a passing grade” for its early pandemic strategy — such as cutting its Overnight Lending Rate to 0.
“Unfortunately, these programs were not scaled appropriately during the long middle of the pandemic and created market functioning issues,” the economists write. “In addition, restrictive forward guidance limited the Bank of Canada’s ability to respond to underlying economic conditions, delaying the removal of accommodation that would have been consistent with mandated inflation.
The Bank’s flunk out, though, was its refusal to hike interest rates at the first signs of stubborn inflation, insisting the trend was “transitory” in the early months of 2022. It didn’t embark on its rate tightening cycle until March, when it implemented a 0.25% increase. Since, it’s had to play catch up in its April and June announcements with supersized half-point hikes, and may need to deliver a“The Bank of Canada also tied its hands with overly restrictive forward guidance.
They add that the BoC’s insistence on using metrics such as the unemployment rate and capacity utilization rates didn’t account for disruptions restricting other forms of supply. “As consumer prices began increasing more rapidly in 2021, the Bank of Canada’s pledge to keep rates on hold until “slack” was completely absorbed looked more and more out of touch.”Penelope Graham is the Managing Editor of STOREYS. She has over a decade of experience covering real estate, mortgage, and personal finance topics.
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