BoC’s more hawkish tone is ‘prudent, says Vachon

Bloomberg

National Bank of Canada Chief Executive Officer Louis Vachon said the Bank of Canada (BoC) is being “prudent” in reducing government bond purchases and hinting it may raise interest rates earlier than expected.
“We don’t know how this thing will evolve — we’re navigating in uncharted waters,” Vachon said in an interview after the bank’s annual meeting. “But by signalling that they could slow down a bit in terms of quantitative easing, they give themselves good optionality in terms of policy.”
The central bank said this week Canada’s economy is recovering well and may bounce back from its pandemic losses sooner than expected, setting up a possible rate increase in the latter part of 2022. The turn towards more normal monetary policy has been
resisted by counterparts
elsewhere, including the US Federal Reserve.
The strong recovery is reflected in the forecasts by Vachon’s bank, which is calling for 5.5% real economic growth for Canada in 2021 and 3.3% growth in 2022, with inflation in a range of 2% to 3%, the CEO said.
The Bank of Canada’s statements fit with overall messaging from central banks that they won’t allow inflation to move outside of a normal range for an extended period of time, Vachon added.
Vachon also praised the Canadian government’s plan to introduce subsidised child care that would cost just C$10 ($8) a day, which was announced in the federal budget and is modeled off a similar program in Quebec, where National Bank is based. Subsidized child care not only increases labour-force participation by women but also keeps the economy resilient by creating more two-income households, Vachon said.
“One of the reasons that we’ve performed well in terms of loan losses compared to our peers in recent years is partly because of that greater economic resilience with that model,” Vachon said.