Interest rates unable to ‘fine-tune’ affordability: chief economist

One chief economist stresses the importance of independent monetary policy following criticism of the Bank of Canada.

Pedro Antunes, the chief economist at the Conference Board of Canada, said in an interview with BNN Bloomberg Tuesday that the Bank of Canada’s high-interest rate policy has received criticism from policymakers and politicians. 

“We do still need to consider that monetary policy needs to stay independent,” he said. Antunes added that monetary policy is a “very broad tool” which is unable to “fine-tune things like affordability or inequality.” 

Antunes’ comments come after remarks from Bank of Canada Governor Tiff Macklem that outlined the limits of monetary policy, saying the central bank is unable to address issues like housing affordability through interest rates. 

Macklem also said in hindsight, the central bank could have started withdrawing its pandemic stimulus sooner, although doing so wouldn’t have had a major impact on post-pandemic inflation. 

“When the economy reopened, people wanted to catch up on what they’d missed, but supply could not keep up. This put immediate upward pressure on prices,” he said. 

Macklem also noted that the central bank’s move to lower its policy rate in 2020, among other factors, spurred demand for housing while supply increased to a lesser degree. He noted that housing prices climbed by over 50 per cent in two years.

Antunes said this was something that was likely not taken into consideration by the Bank of Canada at the time. 

“So it had really nothing to do with supply and demand through that period, it really had to do with the amount of credit and the amount of savings that was going back into a fixed stock of housing,” he said. 

Going forward, fostering affordability in the housing market will require increasing supply, according to Antunes. 

“Supply and demand, and certainly supply, is really the way to solve the problem going forward in terms of affordability. It’s going to take time,” he said. 

With files From the Canadian Press 

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