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Why interest rates are finding a ‘new normal’ Add to ...

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Bank of Canada Governor Stephen Poloz, fresh off the thorny question of inflation’s longer-term trajectory, tipped his hand on the next tough issue he is preparing to tackle: Will interest rates ever return to their previous normal heights?

Mr. Poloz, in a CBC Radio interview the day after the central bank’s quarterly monetary policy report (MPR), said the next MPR (in October) will delve into where the “new normal” for interest rates will be once all the post-Great-Recession dust settles. He believes that the normalized or “neutral” level for rates (i.e. the stable level for an economy operating at full capacity) will be lower than the previous historical norm, generally considered to be about 4 per cent for Canada.

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