Interest rates will not return to pre-pandemic levels any time soon, experts warn. Even if the risk of recession hanging over the Canadian economy, the Bank of Canada will not ease monetary policy “for a very long time,” believes a former head of the institution.

The break in the rise of policy rate The easing announced by the Bank of Canada “is not the start of an easing cycle,” BlackRock Investment Institute chief executive Jean Boivin warned during a conference organized by CFA Montreal on Thursday.

Speaking to an audience of businesspeople, the former Bank of Canada lieutenant governor said he believes the institution is “a long way from enforcing this easing.”

Between the risk of triggering a recession or losing control of theinflation (and thus their credibility), “I think it’s a glob for all central bankers: they will choose recession” to bring inflation down to 2%, Mr Boivin said.

Jimmy Jean, vice president, chief economist and strategist at Mouvement Desjardins, also a panelist at the conference, also pointed out that it would take time for interest rates to come down – a trend that contrasts with the last 15 years in which monetary policy was “sometimes accommodating, sometimes very accommodating”.

“There will be a decline, but unlike what we usually see in a recession, it will be very measured and very slow,” Mr Jean said. The economist predicts that the key interest rate could approach 2.5% by the end of 2024 and then remain at this level. In a deep recession, “like in the 1990s, you would think that inflation might fall below the target, and then the central banks could throttle [les taux] a little faster,” he added.

An unusual situation

“This is by no means a typical recession that we are facing,” said Jean Boivin, who points out that the economic environment has changed radically since the pandemic.

“There was a break with the last 40 years – a period dominated by shocks stemming mainly from fluctuations in demand such as consumer spending, business investment and fairly stable production capacity,” he explains. This has changed fundamentally since 2020. We are now in a constrained environment driven by supply and production constraints. »

In this regard, the chief executive of the BlackRock Investment Institute believes that the tools that have been used to solve the recessions of the past will not be suitable for the recession that awaits us. “It is assumed that central banks will not be able to cut interest rates. Inflation is expected not to be as low as markets are currently anticipating. »

But if the economic environment has changed, could central banks revise their inflation target? “If there is a change in target, it will only be after they have stabilized inflation at 2% for a period that they have proven they can do it and then maybe the door will say open to them : Is that really the right goal? But until then, it’s clearly not in the cards,” believes Mr. Boivin.

Moreover, if inflation has actually been moving downwards for a few months now, according to the rather believing expert, it would be wrong to see a direct line towards inflation at 2% and that the road to this target could be winding.

Annual inflation in Canada continued its slow decline last December, leveling off at 6.3%. It peaked at 8.1% last summer.

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