Evidence of meeting #37 for Finance in the 45th Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was productivity.
A video is available from Parliament.
Liberal
Jake Sawatzky Liberal New Westminster—Burnaby—Maillardville, BC
Thank you, Chair.
Maybe you wanted to just continue your train of thought from the previous question and finish that thought.
Governor, Bank of Canada
Thank you.
I was going to say, yes, in the big picture, during COVID, the economy was down 15%. We had record levels of unemployment. We were in deflation. It was a very dire situation. We used a policy we have never used before, an emergency policy, quantitative easing, and together with other policies the economy recovered. Did it all work perfectly? No, it didn't, but it did get us out of a very deep hole. We were one of the first countries to end quantitative easing. We haven't done quantitative easing in three or four years now. After quantitative easing, we did quantitative tightening. We rolled off our balance sheet and we brought it back to more normal levels.
Now, we are basically back into a more normal balance sheet and we are doing normal operations. People still hold our bank notes—cash. They are in circulation, and as the economy grows, people need more cash. That's a liability to the Bank of Canada. We hold assets to match our assets and liabilities. As such, yes, we have restarted buying small amounts of government debt as the asset to match our liability. That's how central banks work. That's how it worked before COVID, and those are routine operations.
Liberal
Jake Sawatzky Liberal New Westminster—Burnaby—Maillardville, BC
I'll just start by saying thank you so much for coming, Governor, and Senior Deputy Governor. It's truly an honour to speak with you again.
We've talked about disruptions to the oil market, and we haven't touched on the fertilizer market. I'm curious about how that will affect food prices here in Canada. Is that something you could speak to?
Senior Deputy Governor, Bank of Canada
This goes back to the question we were talking about earlier. It's a key input to food prices. It has a longer lag time to show up in food prices. It's usually about a year out, because it affects the crop.
I was actually out west about a month ago talking to farmers, and what I heard mostly was that, because the crop last year was quite good, farmers had pre-purchased a lot of their fertilizer for this year—but not all farmers and probably not in all cases—so that will buffer them a bit from the current spike in fertilizer prices, but certainly just as with energy, if the price stays up for a long time, that is a key input into food prices. Then you have to think of food as more of a global commodity too, so even if our Canadian farmers are buffeted from the fertilizer price this year, it will affect global food prices, we expect.
Liberal
Jake Sawatzky Liberal New Westminster—Burnaby—Maillardville, BC
Thank you.
We've also talked about, of course, the price spikes in oil around the globe. People are seeing that at the pump. What are some of the cascading effects if the ongoing closure of the Strait of Hormuz continues? What is the future?
Senior Deputy Governor, Bank of Canada
Well, oil is a key input to many goods. Right now it's affecting the price at the pump. It's affecting things that have a very direct effect—transportation and airfares. You're seeing surcharges over time. That could start to spread. Oil is also an input into some goods and products—plastics, for example—packaging and that kind of thing.
We're also hearing—and this is not something that is likely to affect Canada immediately or directly, but for us it becomes a price issue—that, for some jurisdictions, it becomes an availability issue, so there will be rationing. There's rationing in some jurisdictions already.
Liberal
Jake Sawatzky Liberal New Westminster—Burnaby—Maillardville, BC
I'm sorry. I have about 40 seconds left here.
What factors are most important when you're determining your next steps on interest rates?
Governor, Bank of Canada
We're trying to balance two risks, really. I just emphasize that there's no risk-free path for the policy rate. We held the policy rate, and we indicated that we're willing to look through the immediate impacts. That was the right thing to do today—or last week, technically. If we raise rates, and energy prices come down as the market impacts, by the time those higher rates started to affect the economy we wouldn't need them, and we would wish we hadn't raised them—
Liberal
Liberal
The Chair Liberal Karina Gould
We'll get to you afterwards, but just to keep the meeting moving along—
Governor, Bank of Canada
The other side of it is that, if we're too slow, that also creates a problem.
Conservative
Jasraj Singh Hallan Conservative Calgary East, AB
Thank you.
We've seen an alarming rate of delinquencies, or concern about delinquencies, going up. Can you give us a bit of information about what you're seeing in delinquencies?
Senior Deputy Governor, Bank of Canada
Are you talking about loans and mortgages?
Conservative
Senior Deputy Governor, Bank of Canada
I think that, overall, delinquencies have stayed at a pretty historically low level. Where we see delinquencies is actually not so much in the mortgage market; they are in the non-mortgage market, so consumer loans. Those have gone up. A lot of focus has been on mortgage holders because they were affected by interest rate increases, but where we have seen more concerning trend lines on delinquencies is in non-mortgage debt.
Conservative
Senior Deputy Governor, Bank of Canada
Yes, I mean car loans and non-mortgage credit, consumer credit.
Conservative
Jasraj Singh Hallan Conservative Calgary East, AB
What are you seeing an increase in when it comes to non-mortgage loans or debt? As one of my colleagues mentioned, we did a study here on household debt, which is the highest of all of the G7 countries right now. There is a lot of concern about how a lot more people are now putting more necessities on credit cards—like food, clothing and just the basics. Are you seeing an uptick in the kind of debt people are accumulating? What are the products they're buying?
Senior Deputy Governor, Bank of Canada
I don't have that kind of data with me today, but what I would say—and the governor mentioned this earlier—is that you always have to look at the different segments of the economy. In total, household debt has improved, but there are segments of the economy that are certainly, I think, feeling more pressure as a result of the affordability challenges, and are more likely to be putting necessities on credit.
Conservative
Jasraj Singh Hallan Conservative Calgary East, AB
With mortgage arrears and delinquencies, are you seeing a different category of, maybe, the house itself or the value of the house? Is there a difference you're seeing in who's being more delinquent?
Senior Deputy Governor, Bank of Canada
I don't know about the value of the house but, certainly, we are able to look at delinquencies at a regional level. In areas where you see employment affected more, you're more likely to see delinquencies.
Conservative
Jasraj Singh Hallan Conservative Calgary East, AB
Have you done any analysis on whether, if the interest rate does go up, that is going to affect delinquencies?
Senior Deputy Governor, Bank of Canada
We would call that a stress test; we don't have a specific stress test.
Typically, when you see interest rates go up, you can see that show up. Usually, there's a lag, but it does show up in delinquencies over time.
Even when interest rates were up at the peak, we did see some increase in delinquencies, but in aggregate, they stayed within historical ranges.