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BoC Review: New normal for policy rate is likely going to be lower than in pre-crisis era

The Bank of Canada recently published its 'Bank of Canada Review,' a semi-annual publication featuring articles related to the Canadian economy and to central banking, with key quotes found below.

Estimates of the global neutral rate have been steadily falling over the past few decades. 

Both global and domestic factors have likely reduced the Canadian neutral rate.

The Bank’s estimate of the Canadian real neutral rate is a range from 0.5 to 1.5 per cent, down from a range of 1.0 to 2.0 per cent three years ago.

This low neutral rate has important implications for monetary policy and financial stability.

A low interest rate environment may increase the incentives for banks and other financial institutions to take on more risks.

The new normal for the policy rate in Canada is likely going to be lower than in the pre-crisis era.

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