Rogers Admits Policy Rate Too Blunt for Housing Affordability

Bank of Canada senior deputy governor Carolyn Rogers said that the central bank's policy rate is too blunt an instrument to fix housing affordability, even as it holds its benchmark at 2.25 percent and weighs when hikes might resume.

Economists say a soft economy weighed down by trade uncertainty and slowing immigration will cap any tightening at about half a percentage point, but critics argue the admission exposes how heavily Ottawa has leaned on the central bank to solve a housing problem that only fiscal and regulatory policy can address.

Rogers framed housing as a far larger piece of the economy now than it was in the past, recalling that residential investment made up 4.3 percent of Canada's GDP in 2000 while business investment in machinery, equipment, and innovation was 8.3 percent, and today that relationship is reversed.

Soft economic conditions will limit room for interest rate hikes, according to Capital Economics, which expects only a modest tightening when it comes. In a note published Wednesday, the firm argued that a sluggish economy, weighed down by trade friction with the U.S. and slower population growth, will keep inflation in check and spare the bank from pushing rates far.