David Rosenberg: BoC risks falling behind if Poloz doesn't hike rates
Gluskin Sheff Chief Economist David Rosenberg is taking Bank of Canada Governor Stephen Poloz to task for staying on the sidelines and not hiking interest rates. In an interview on BNN, Rosenberg said there’s nothing wrong with prudent caution, but Poloz is going overboard by not aligning monetary policy to the current level of growth.
“Let’s face facts: you don’t have to be the biggest bull in the world, and I certainly am not, to see that nominal GDP growth in Canada is between three and four per cent. I mean, that’s not strong, but it doesn’t warrant a 0.5 per cent policy rate,” he said. “You have measures of inflation between one and a half and two per cent, and the bank is keeping the overnight rate at 0.5, and saying it’s going to keep it there until probably early next year at the earliest?”
Rosenberg said the low benchmark rate is aggravating housing conditions, which he has characterized as a bubble in Toronto.
“As long as you keep [nominal] rates negative for this long, and it’s already been eight years, it fosters bubbles in other parts of the economy. Housing is usually a principal candidate,” he said. “Just go back to when the [U.S. Federal Reserve] kept real rates negative for so long in the last cycle, and look what happened to their housing market.”
Rosenberg said the Bank of Canada may be doomed to repeat the Fed’s mistake if it chooses not to take action.
“There’s a risk for the Bank of Canada here, in my opinion, of ultimately moving rates up too little, too late, much like the Fed did,” he said. “We have a Taylor Rule for Canada which measures where the policy rates should be. [It’s] nowhere near 0.5 per cent. At a minimum, it should be 2.5 per cent right now.”
Rosenberg said absent action from federal lawmakers to tax capital gains on speculation or increasing housing stock, Poloz needs to look to his own toolbox for solutions.
“When you have a central banker talking about speculative excess in the housing market, you’ve got to start looking in your own backyard because part of that excess is leverage, and part of that leverage is being deployed because real rates are as negative as they are.”