Citing global trade uncertainty and diplomatic tensions with China, the Senate’s Banking and Trade committee chair wants to hear from Bank of Canada boss Stephen Poloz and asked that a ‘special meeting’ be convened.
“We spent a fair time negotiating the new NAFTA, that’s not ratified so there’s uncertainty between us and the U.S., there’s tremendous uncertainty between us and China, us and India, Saudi Arabia… are all important markets or important potential markets,” Senator Doug Black told The Post Millennial.
“This going to have an impact on anyone who exports or desires to export, or import from those countries. So how is that going to be factored into (Bank of Canada’s) equation?”
Black said the Senate banking committee typically hears from the central bank’s governor in the spring and fall, but because Parliament is “out on extended break” in the lead to the October 21 election, “I thought it was timely that we hear from (Poloz) as early in the fall as we could.”
Eight times a year the Bank of Canada sets a target for the overnight rate, the one-day interest rate at which major financial institutions borrow and lend short-term funds among themselves.
Changes to the overnight rate can influence other interest rates, such as business loans, credit lines and mortgages, as well as affect the exchange rate of the Canadian dollar.
The central bank’s next policy rate announcement is scheduled for September 4 – a year previous that date, Bank of Canada increased the overnight rate a quarter percentage point to 1.75 percent, where it has remained.
As several major economies’ central banks have eased their interest rates – United States’ Federal Reserve doing so for the first time in a decade, dropping from 2.5 percent to 2.25 percent on July 31 – Black said he is “interested in knowing the governor’s thought process around that.”
“Other countries are dealing with the challenges that they’re confronting by lowering their interest rates, and I have no idea whether that’s appropriate in Canada at this time or not, but I want to hear what the governor has to say,” Black said.
“The key challenge now, obviously, is the issue around trade, the issue around global tariffs and the issue around the thickening of borders, Canada’s borders, whether it’s with the US or others.”
Canada’s household debt-to-GDP ratio is among the highest in the developed world. Our country also experienced minuscule Gross Domestic Product growth of 0.1 per cent in the final quarter of 2018, while Bank of Canada forecasted lacklustre GDP growth of 1.2 per cent for this year (1.7 is considered benchmark), increasing to 2.1 per cent in 2020.
When Bank of Canada held its overnight rate steady at their monetary policy announcement in July, Senior Deputy Governor Carolyn A. Wilkins also noted uncertainty associated with trade and interest easements occurring elsewhere.
“At the global level, escalating trade conflicts and geopolitical tensions have been taking even more of a toll on trade and business investment than we expected,” said Wilkins. “Several major central banks have said they are ready to provide more accommodative monetary policy or have already taken policy actions.”
Adding to economic uncertainty on the home front was the loss of nearly 64,000 jobs in July, causing the unemployment rate to inch up 20 basis points to 5.7 percent.
As chair of the Senate Banking, Trade and Commerce committee, Black requires the consent of the Upper Chamber’s government representative, Senator Peter Harder, and Opposition rep Senator Larry Smith to hold the meeting.
Correction: Bank of Canada increased its overnight rate from 1.5 to 1.75 percent on October 24, 2018, not September 4th as this story suggests. TPM regrets any confusion this error may have caused.