Monetary Policy - Op Eds

Published in The Globe and Mail.

Two years ago, the federal government made a surprising decision to cease issuing Real Return Bonds (RRBs) – the government of Canada bonds that are indexed to the Consumer Price Index. It justified cancelling new issues of RRBs with the argument that there was not enough demand for them. Yet RRBs are a valuable tool for investors to protect themselves from inflation and for the government to contain the cost of its debt. This is why it’s time to reverse this decision and bring RRBs back to the market even bigger and better than before.

RRBs are unique. Their principal increases with the price level, meaning that whether inflation is 2 per cent – in line with the current commitment of the…

Published in The Globe and Mail. 

With CPI inflation slowing to 2.5 per cent in July, the rate cut announced by the Bank of Canada on Wednesday surprised no one.

Given the dovish tone of the bank’s announcement, it would be reasonable to expect at least one and possibly two more 25-basis point cuts before the end of this year (a basis point is one-hundredth of a percentage point).

This cut widened the gap between the Bank of Canada’s overnight rate target and the top of the U.S. Federal Reserve’s band for its equivalent, the federal funds rate, from 50 basis points at the end of May to 1.25 per cent.

Should this gap worry the Bank of Canada – perhaps lead it not to cut the overnight rate again even if it…

Published in The Globe and Mail. 

When headline inflation increased to 2.9 per cent in May, up from 2.7 per cent in April, there was much speculation that the Bank of Canada would pause its rate cuts. However, it ticked back down to 2.7 per cent in June. That, plus a weakening labour market and stagnating per capita GDP, made it practically certain the bank would cut on Wednesday. It did.

Whether the bank has entered an easing cycle is no longer the question. The only question left is how far and how fast the Bank of Canada continues to cut interest rates.

There are several upside risks to inflation in the near future which could cause the bank to pause its rate cuts. We think it shouldn’t. Here’s why.

The…

Published in the Financial Post

Media reports abound with speculation about how Bank of Canada interest rate cuts will lift the Canadian housing market. To be sure, you hear cautionary notes that the rate cuts that began with last week’s 25-basis-point cut will likely be slow. Less has been said, however, about how for many homeowners lower rates won’t actually reduce borrowing costs.

Variable-rate mortgages should see a full and immediate response to the rate cuts. But the 2024 CMHC Mortgage Consumer Survey shows only 23 per cent of mortgages are variable rate, five per cent are a fixed/variable combination and 69 per cent are fixed rate. The most common fixed-rate mortgages are for five years although three-year terms…

Published in The Globe and Mail

The Bank of Canada finally pulled the trigger on Wednesday and reduced its policy rate by 25 basis points. Forecasters were split between a June or July cut, but overall, the data were just too strong in favour of a cut – or too weak, as it were, considering the latest GDP numbers. 

This marks the beginning of a cycle of easing policy rates. The question for most commentators, investors, and consumers is now: How far and how fast?

The bank cut its policy rate from 5 percent to 4.75 percent. Despite the cut, a strong case can be made that monetary policy is more restrictive now than it was at the Bank of Canada’s last announcement on April 10. This augurs well for further declines…