But Deputy Governor Carolyn Rogers says the central bank welcomes recent attention so it can try
After years of being ignored by almost everyone but a few bankers and financial journalists, you might think the people who work at the Bank of Canada would be annoyed by everyone telling them what to do
But according to the bank’s senior deputy governor, Carolyn Rogers, despite the bank becoming a political football criticized by leaders of both opposition parties, labour advocates, homeowners and people in the real estate business, and by letters to the editor offering solutions that are declared obvious and simple, she says they like all the attention
I think my colleagues have really embraced that extra scrutiny and criticism,
Rogers told a group of students and young financial professionals at the University of Ottawa Tuesday
We’re getting lots of advice. We don’t agree with all of it, but we do listen to all of it
Open season on central bankers
Others financial experts worry that now that it’s become open season on central bankers, there is a danger that Canadians could lose confidence in the crucial job that the Bank of Canada does keeping our money safe and our financial system sound
In something like a Reddit Ask Me Anything, Rogers responded frankly to questions at Tuesday’s event
But her message, which began with an update on the risk of instability to the Canadian financial system, was only partly reassuring
The Bank of Canada’s recent media star status makes the hour-long session useful unmediated viewing for those who have caught the central banking bug (new window). It included the bank’s take on the current crypto crisis (new window), digital loonies (new window) and climate change risk
But as the bank warned in June in its annual Financial System Review, high Canadian debt levels, combined with high inflation and the rising interest rates needed to get inflation under control, make the Canadian economy vulnerable
At that time, the bank warned those at greatest risk were people who bought a house at top prices and bottom mortgage rates, and said that it is possible those buyers would have to be sacrificed (new window) for the good of the rest of the economy
While the risk of job losses that would have compounded the problem may be waning, Rogers said, rising interest rates and falling house prices are hurting more mortgage holders
The bottom line is that mortgage costs for some Canadians have already increased and they will likely increase for most others in time,
she said
Trigger warnings
While those with fixed rate mortgages get a bit of a break before rate hikes kick in, an increasing number of those with floating rate mortgages have hit the “trigger rate (new window)” where mortgage payments simply are not enough to cover borrowing costs
New data released by the bank on Tuesday shows that half of all variable mortgage holders with fixed payments now owe more than those fixed payments
We estimate that just about all variable rate mortgages taken about between May 2020 and July 2022 are now in this position,
said economist Royce Mendes in a Desjardins research note Tuesday
A different kind of trigger also got a mention in Rogers’ speech, a reference to the kind of global or national crisis that could act on Canada’s vulnerabilities and send the economy spiralling into bigger trouble (new window)
The risk of a trigger that may affect financial stability has increased,
she said
Central bankers don’t predict crises, they just warn about them. But it is not clear that those warnings of risk hit have home in the past. It is not clear if people are listening now
If there was a main message that came out of Rogers’ Tuesday session it was that the Bank of Canada is anxious to inform and educate Canadians to help them understand monetary policy,
she said. But that may be a heavy lift, even though our central bankers keep trying
Financial journalists like to try to make monetary policy sound simple, but as a Tuesday interview with Jeremy Kronick, Director of Monetary and Financial Services Research at the C.D. Howe Institute showed, it really isn’t
Doing your own brain surgery
Kronick explained why the Bank of Canada was currently losing money, because it had borrowed bonds that paid low interest rates but was paying commercial banks high interest rates for the money they had used to do that. He explained the difference between corridor rates and floor rates. It is all outlined here in what Kronick said was “a way that people understand.” (new window)
The fact is that for most of us, central banking is not easy to understand. Like brain surgery, people with aptitude spend years learning how to do it. When we want a stable financial system, we bring in experts to do the job
That’s why it’s been a bit frustrating to see [the Bank of Canada] politicized so much,
said Kronick, who noted that Rogers and her team are known to be qualified by those who do actually understand what they’re doing. They also know that even qualified experts can’t always predict the future
Kronick said that when central bankers — not just the Bank of Canada — failed to foresee that inflation would stick around after the COVID economic crash, commentators and politicians everywhere decided they could out-think the central bank
Increasing interest rates hurts, and taking sides against the Bank of Canada may make people think you are smart. But he said eroding confidence in people like Rogers is bad for central banking and bad for the rest of us
It’s natural that people are looking for alternative solutions,
said KronickI’m just not convinced that these so-called other solutions are going to lead to the results that people want
CBC News
