Ex-BoC chief: The central bank ‘intentionally’ caused housing inflation, but real estate will calm down – David Dodge
The Bank of Canada “intentionally” caused asset prices to rise in 2020 and 2021. However, recent interest rate increases will have a “cooling effect” on home prices.
That’s according to David Dodge, former Governor of the Bank of Canada and senior advisor at Bennett Jones LLP. Dodge spoke with David Lane, announcer and producer at Kitco News.
The Bank of Canada is the central bank of Canada, the equivalent of the Federal Reserve in the United States.
Dodge said the onset of the COVID-19 pandemic required governments and central banks to work together to combat production loss. The Bank of Canada has expanded its balance sheet and lowered interest rates to do so.
“So all [that] It happened in February 2020, almost to the end of 2020, and was remarkably successful in avoiding what would have been an absolute disaster here in Canada and around the world. “The short story is that the Bank of Canada did exactly the right thing in the spring of 2020 in being an adaptive, in order to get us out of the supply shock that came with COVID.”
However, Dodge said the bank should have raised interest rates sooner.
“The story gets more difficult after that ,” he said. “We argued at Bennett Jones a year ago that governments would indeed have to constrain the amount of fiscal stimulus flowing into the economy, and that the Bank of Canada would have to end the period of excessive sedation and begin, by the end of the year, to raise interest rates.”
He added that rates should have risen to “somewhere in the 2 to 3 per cent range” in 2021.
In response to allegations that loose monetary policy caused inflation, Dodge replied, “It is absolutely true … not that they did the wrong thing in 2020, but … fiscal and monetary policy did not respond quickly enough in 2021, especially in the fall of 2021 .”
He also said that “inflation expectations” are important in determining policy. Because expectations are such low in Canada, Dodge added that the bank is able to rein in inflation.
“I would give one caveat against all of that,” he said. “And as long as we insist on raising the prices of natural resources by cutting off supply to Russia, Ukraine, etc., as long as we are going to do that, you cannot offset that by reducing aggregate demand. [through interest rate hikes]. ”
To learn more about Dodge’s analysis of the Canadian housing market, watch the video above.
Follow David Lin on Twitter: @davidlin_TV
Follow Kitco News on Twitter: @KitcoNewsNOW
Not giving an opinion: The opinions expressed in this article are those of the author and may not reflect the views of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; However, Kitco Metals Inc. cannot. Nor does the author guarantee this accuracy. This article is for informational purposes only. It is not a solicitation to conduct any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. does not accept The author of this article will be liable for losses and/or damages arising from the use of this publication.