BMO CEO dismissing concerns Canadian banks won't have enough cushion in economic downturn
Canada should prepare itself for a new normal of low interest rates and low inflation, according to the chief executive officer of the Bank of Montreal.
“We’ve had movements that, on surface, at the macro-level, would appear quite volatile over the last two years,” said BMO CEO Darryl White in an interview with BNN Bloomberg’s Amanda Lang on Tuesday.
“But, when you trend it over time, you step back and look at it with a lot more aperture, you can come to the conclusion that we’re in a low-for-long environment both from a rates perspective and an inflation perspective. I think where we are now is actually reasonable.”
Many investors and economists expect interest rate cuts on both sides of the border in 2019, but a cut stateside is not viewed as a likely outcome in Wednesday's decision by the U.S. Federal Reserve.’ In April, White told reporters after BMO's annual meeting of shareholders that Canada’s economic growth was “moderating” while noting the risk of a recession in the coming year is relatively low.
White said the “really hard calls” central bankers need to make should focus on economic fundamentals and not create financial bubbles with snap decisions.
“If the reason to cut rates is because we’re trying to stimulate fundamental real economy growth, that’s one thing. And that’s a reasonable conclusion for a central banker to come to, because we don’t want to accelerate quickly towards a zero-growth world,” White said.
“But, if the unintended consequences that we’re creating, even if small, if we’re creating asset bubbles in certain asset classes, real estate for example, then I would start to worry.”
White added that he believes Canada’s housing market is in better shape than it was at the start of 2018. He previously noted in April that the bank has seen some moderation in Canadian consumer loan and mortgage business, which he believed was both "healthy and expected".
“We’re going to have movements in different markets over time, but the fundamental of supply and demand that should drive a stable market and a rational outcome is much more present today than it was a year and a half ago when we had intervention to stabilize a market,” he said.
“We’re always, I would say, appropriately concerned about the housing markets in Canada, but at this point in time, we’re a lot more in balance than we were at that point in time. So, I think we’re in good shape.”
As for the short calls against Canada’s banks – most notably from famed portfolio manager Steve Eisman – White said the banks can’t make quick moves on loan-loss provisions based on day-to-day changes.
“It’s not prudent in my mind to wake up one day and say ‘We’re in a brand new world, therefore yesterday we set aside this, and tomorrow it will be that,’” he said.
“It’s evolving. It’s dynamic and it goes through a rigorous process.”