Mark Carney: Recession is coming, but interest rates won’t come down

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Mark Carney, the former Bank of Canada governor, said interest rates are unlikely to come down this year, countering Bay Street expectations that Canada’s central bank will be forced to cut borrowing costs to offset slower economic growth.

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“I don’t think it’s likely at all that central banks are going to be cutting rates later this year,” Carney said in an interview with BNN Bloomberg on Feb. 10. “It’s a possibility, but it’s not a very likely possibility.”

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Carney’s comments come as Canadians are getting mixed signals about the trajectory of the economy. Some experts believe a recession is on the way, but recent numbers seem to suggest otherwise. With 150,000 jobs added in January, Canada’s economy appears to be doing better than expected.

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Things are so hot, in fact, that the central bank is trying to cool things down. Headline inflation was 6.3 per cent in December, much higher than the Bank of Canada’s target of two per cent. In response, the central bank has raised its overnight interest rate — to 4.5 per cent from 0.25 per cent a year ago — to cool demand and slow things down.

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Canadians should not be under any illusions about the state of the economy, said Carney. “One of the things you need in a crisis: you need to be straight with people about the scale of the issue,” he said. The economy still has momentum, but it’s misleading, he added. Though the numbers might not clearly indicate a recession, that is indeed where the economy is heading, he said.

Still, Carney said he doesn’t think central bankers will cut rates as quickly as the might have in the past. That’s because inflation is “still too high,” he said, and “monetary policy needs to be tight.” If rates are cut, inflation could flare again, and central bankers are unlikely to take the risk, he added.

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The instability in the economy is an “extension of the COVID crisis,” Carney said, even though most Canadians believe the worst of the pandemic is over, according to CTV News, citing a poll by Research Co. The pandemic was a “huge shock” to the economy, and Canada is only now emerging from the consequences of that period, Carney said, adding that he anticipates the effects of the crisis could linger for about five years.

“We’re obviously in a much better position in terms of health, in terms of people’s lives, and in terms of the economic consequences,” he said. “We’re getting through it. We have to see it all the way through.”

Carney said it’s important to try to envision the future. “What kind of world is going to emerge as we come out of the crisis?” he asked. “What’s the world looking like, and how do we, as Canada, as Canadians, take advantage of that?”

• Email: mcoulton@postmedia.com | Twitter: marisacoulton