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28 Oct 2024
BoC Macklem: If population growth slows more than assumed, headline GDP will be lower
Bank of Canada (BoC) Governor Tiff Macklem said on Friday that if population growth slows faster than assumed, the headline Gross Domestic Product (GDP) will be lower.
Key quotes
Having returned to low inflation, Canada is in a better place to deal with new economic shocks.
There's a fair amount of uncertainty on how quickly Canada's new immigration curbs kick in, BOC will be watching.
Effect of changes in assumptions about population growth will have a bigger impact on our GDP forecast than our inflation forecast.
If population growth slows faster than assumed, headline GDP will be lower than assumed.
Market reaction
At the time of writing, USD/CAD was up 0.06% on the day at 1.3895.
Bank of Canada FAQs
The Bank of Canada (BoC), based in Ottawa, is the institution that sets interest rates and manages monetary policy for Canada. It does so at eight scheduled meetings a year and ad hoc emergency meetings that are held as required. The BoC primary mandate is to maintain price stability, which means keeping inflation at between 1-3%. Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Canadian Dollar (CAD) and vice versa. Other tools used include quantitative easing and tightening.
In extreme situations, the Bank of Canada can enact a policy tool called Quantitative Easing. QE is the process by which the BoC prints Canadian Dollars for the purpose of buying assets – usually government or corporate bonds – from financial institutions. QE usually results in a weaker CAD. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The Bank of Canada used the measure during the Great Financial Crisis of 2009-11 when credit froze after banks lost faith in each other’s ability to repay debts.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Bank of Canada purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the BoC stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Canadian Dollar.