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Bank of Canada says low rates still merited but growth should improve


IQALUIT, Nunavut (Reuters) – Bank of Canada Governor Stephen Poloz said on Monday that the economic outlook continues to warrant an interest rate below the neutral range, but noted that recent data suggest the period of slow growth will be temporary.

Speaking at a mining conference in Iqaluit, Nunavut, in Canada’s far north, Poloz said trade uncertainties are weighing on Canada and the global economy, which is not performing as well as was expected just a few months ago.

Despite the difficulties, he said there are clear signs that Canada is adjusting, noting the central bank can see many positive signs for the economy.

“Recent economic data have been generally consistent with our expectation that the period of below-potential growth will prove to be temporary,” Poloz said.

The Bank of Canada – which has hiked rates five times since July 2017 – stayed on the sidelines last month, warning there was “increased uncertainty” on the timing of future hikes. The next rate decision will be April 24.

While Poloz’s tone remained cautious, he did not mention the need for the central bank to move away from its hiking stance, instead repeating that the central bank is closely monitoring the data.

Looking domestically, Poloz said Canada’s energy sector continues to adjust to lower global oil prices, while the housing industry is taking longer than expected to digest new mortgage rules and the impact of higher interest rates.

At the same time, he noted more than 350,000 jobs were created in the last year and labor income grew by 5 percent in the fourth quarter.

“These data suggest that the mixed picture offered up by the Canadian economy today reflects some important structural changes beneath the surface,” he said. “Judging what all this means for the outlook for inflation is of course a challenge for us.”

Poloz said protectionist trade policies continue to be a threat for Canada, holding back business investment, but said Canada’s existing trade agreements will help buffer the country from some of the negative developments.

He also noted the importance of lowering trade barriers between provinces, estimating it could boost Canada’s economic growth by 0.2 percent points per year, or some C$4.5 billion ($3.4 billion).

Writing by Julie Gordon in Ottawa, Editing by Steve Scherer and Chizu Nomiyama



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