Bank of Canada should be cutting interest rates, ex-Pimco manager says

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The Bank of Canada is keeping interest rates too high and should already be talking about lowering them, Pacific Investment Management Co.’s former head of Canadian portfolio management said.

Governor Tiff Macklem and his officials held the policy rate at five per cent on Oct. 26 and left the door open to another hike because of sticky inflation pressures. But the central bank “should be cutting. And they will be cutting at some point in the not-too-distant future,” Ed Devlin said on BNN Bloomberg Television.

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“But Tiff and Powell do not want to go down in history as the people who let the inflation genie out of the bottle and they are going to be overly restrictive,” he said, referring also to United States Federal Reserve chair Jerome Powell.

“They already are overly restrictive.”

Devlin spent nearly 15 years at Pimco, one of the world’s largest asset managers, before launching his own firm, Devlin Capital Inc., more than two years ago.

The Bank of Canada also released new forecasts on Wednesday in which officials downgraded their economic growth outlook this year and next. Real gross domestic product is expected to increase just 0.9 per cent in 2024, with housing, consumer spending and business investment all likely to be weak. The Canadian dollar fell to a seven-month low.

The sluggish Canadian economy stands in contrast to the United States, which grew at the fastest pace in nearly two years last quarter on strong consumer spending. The U.S. economy is considered less interest-sensitive in part because its mortgage market allowed homeowners to lock in pandemic-era low rates for decades — Canada’s did not.

Asked about the global rise in government bond yields, Devlin said “nobody knows” whether yields have hit their peak. But it’s a good time for investors to add government debt to their portfolios, given the sharp increase in real yields, he said.

Bloomberg.com

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