Carolyn Rogers (NYSE:), senior deputy governor at the Bank of Canada, cautioned about persistently high interest rates due to structural transformations in the global economy, escalating government debt, and geopolitical risks. She emphasized that the world’s ongoing adaptation process has little room for flexibility. She noted that Canadians have modified their spending and credit habits in response to these changes.
Rogers warned of the impact of structural changes such as the shift from saving to spending by baby boomers on Canadians’ mortgage renewals. She underscored the need for gradual adjustments to avoid abrupt, destabilizing steps as part of inflation control.
She pointed out that higher government debt and geopolitical risks could escalate rates further. The Bank’s rate hikes have limited the global financial system’s shock absorption capacity, slowed the pace of credit growth, and increased businesses’ debt-servicing costs. These effects, still permeating the economy, have led to reduced spending by Canadians. Rogers stressed on monitoring credit stress indicators as demand for goods and services slows.
Earlier this year on April 20, Rogers testified before the Senate of Canada Standing Committee in Ottawa. She advocated for a proactive and gradual adjustment to these rates after a 15-year period of lower rates to prevent destabilizing the financial system.
Today in Vancouver, Rogers further outlined the forces driving higher long-term interest rates – structural economic changes, elevated government debt, and geopolitical uncertainties. She highlighted how the global financial system is already adjusting to these higher rates, reducing its shock absorption capacity. This shift from a 15-year low-rate period presents a substantial challenge for governments, businesses, and households alike. However, she reiterated the necessity of gradual and proactive steps to safeguard against financial system destabilization. As evidence of this ongoing transition, she referred to current Canadian data demonstrating an adjustment characterized by decreased spending and lower credit demand.
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