The central bank can achieve the inflation target only if rates remain elevated into 2025: David Dodge
A prolonged period of heightened interest rates will be critical to Canada’s central bank reaching its inflation target, a former Bank of Canada Governor said.
Despite signs of a modest cool down throughout Canada’s economy, the Bank of Canada will have to keep rates high until for the next two years in order to reach its two per cent inflation target rate, David Dodge, senior advisor at Bennett Jones, and former Bank of Canada governor, told BNN Bloomberg in an interview on Tuesday.
“It’s going to be a long period of what would be considered elevated interest rates,” he said.
“What it will require (disinflation) is continued— rather elevated— interest rates right through 2024, right into 2025,” he added.
The process of the BoC moving inflation from three per cent down to it’s two per cent target rate will get stickier, Dodge explained. He is calling for the bank to stay the course in the long run.
“It makes it very hard to achieve disinflation when we continue to have growth and when we continue to have by historical standards pretty robust labour markets,” he said.
He believes that excess demand will come from lower savings as the baby boomers age, and general increase in investment as the world navigates climate and technological change.
Dodge is forecasting slow growth to the tune of one per cent, but continued economic growth nevertheless.
A earlier version this story referred to David Dodge as David Doyle, BNN regrets the error.