TORONTO (MaceNews) – Canada will continue to struggle with weak productivity growth and an aging population. Its neutral interest rate, where borrowing costs don’t stimulate or restrain activity, has thus dropped in recent years. The country does not, however, face Japan-style lost decades.
So said Carolyn Wilkins, senior deputy governor of the Bank of Canada, who is widely regarded as a front-runner to head the country’s monetary policy authority, in an address to the Economic Club of Canada Wednesday afternoon.
“There is a lot of talk about secular stagnation. I don’t see this as a reality,” said Wilkins. “Inflation is back on target. Unemployment is at near historic lows. Real wages are growing.”
Wilkins’ presentation’s timing and content were important as Governor Stephen Poloz recently announced that he will be leaving the post in June.
The themes Wilkins addressed – including the threat of future financial crises in an overleveraged global economy — coincided with issues that she would face during a possible seven-year mandate at a central bank.
“Central banks need lower rates, possibly for longer, to counter economic shocks and to meet their inflation targets,” said Wilkins. “It also means that financial vulnerabilities can build.”
Wilkins also floated the possibility of running inflation hot for a few years to make up for past shortfalls, negative nominal interest rates, large-scale asset purchases and cooperating with the Canadian government to ease the path for expansionist policies.
No formal date has yet been set to announce the Bank of Canada’s new governor.