Poloz—who last year adjusted the BoC’s key rate twice to 0.5 per cent in response to lower commodity prices—noted that the potential long-term growth of the global economy fell from 4 per cent to 3.2 per cent, saying that this number can go lower if “headwinds” prevail.
“That downgrade means the neutral rate of interest will be lower for sure — for a very long time,” Poloz said in the speech, as quoted by CBC News
. “Those in the pension business need to get used to it. They need to adapt to it.”
In the realm of pension funds, liabilities are determined using long-term interest rates. Aside from affecting other sectors such as housing and energy, lower rates mean that pension plans would need more money to fulfill their consumers’ future benefits.
Poloz said that these conditions might persist for a long while, telling the audience that they shouldn’t hold their breath for a quick return to the “rapid pace of trade growth” before the recession. The Governor assured, however, that the current developments do not necessarily indicate that another major crisis is on its way.
“We're going to get up to full speed this year,” Poloz stated, adding that he foresees a return to a more normalized monetary policy in a few months.
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In a statement to Wall Street listeners last Tuesday (April 26), Bank of Canada Governor Stephen Poloz said that a middling outlook for global growth means that pension funds should prepare for interest rates that would stay lower than their levels prior to the financial crisis.