Stephen Poloz comfortable leaving interest rates steady despite volatile climate
Tags: Bank of Canada, Stephen Poloz
Stephen Poloz says the Bank of Canada is struggling to get a good reading on inflation due to a raft of temporary factors, including the oil price plunge and the cheaper Canadian dollar.
But the central bank governor said he’s comfortable leaving the bank’s key overnight interest rate unchanged at 0.75 per cent in spite of the volatile inflation environment.
“It wouldn’t make sense to respond to every wiggle in the inflation rate,” he said in remarks prepared for a speech Tuesday to the Greater Charlottetown Chamber of Commerce.
The bank’s “current best judgment” is that underlying “trend” inflation trend is running at 1.6 per cent to 1.8 per cent – still below the bank’s official two per cent target.
The bank’s job is made more difficult because the lower dollar is temporarily boosting inflation, while lower oil prices are driving inflation lower.
And yet the price of crude has regained some of its lost ground in recent weeks, rising above roughly $60 (U.S.) per barrel. That has helped lift the Canadian dollar.
“All of this has certainly made it more challenging to distinguish the trend from the temporary,” Mr. Poloz said.
He complained there are “a lot of moving parts,” clouding the inflation outlook.
In a mostly upbeat speech, Mr. Poloz said the Canadian economy remains on track to reach full capacity and sustainable growth by late 2016. “We project it will take 18 months or so to get there,” he said.
Ignoring recent signs of economic weakness – both in Canada and the U.S. – the Mr. Poloz instead highlighted a number of positive trends, including a rebound in key exports outside the oil patch, a decline in long-term unemployment, more prime-age Canadians joining the labour force and early signs of a recovery in the creation of new companies.
A basket of key non-energy exports tracked by the bank is up 15 per cent in the 12 months through March, he pointed out. That includes jumps of 20 per cent in aerospace, 11 per cent for machinery and equipment and 4.5 per cent in foreign tourism demand.
Mr. Poloz also said he’s also upbeat about business investment, outside the energy sector. He pointed out that companies selling into the U.S. are starting to “feel capacity constraints” and may need to “step up investment.”
Many economist are much less optimistic, pointing to a slowdown in U.S. growth early this year and still weak business investment across most industries in Canada.
Mr. Poloz also highlighted how lower interest rates and cheaper gasoline are helping Canadians. He said a household renewing a $100,000 mortgage is saving $250 a year on interest payments. Likewise, lower gasoline are saving households $500 a year, he said.
The Bank of Canada has kept its key interest rate unchanged at 0.75 per cent since January, when it surprised investors with a quarter-percentage-point rate cut.
But the central bank governor said he’s comfortable leaving the bank’s key overnight interest rate unchanged at 0.75 per cent in spite of the volatile inflation environment.
“It wouldn’t make sense to respond to every wiggle in the inflation rate,” he said in remarks prepared for a speech Tuesday to the Greater Charlottetown Chamber of Commerce.
The bank’s “current best judgment” is that underlying “trend” inflation trend is running at 1.6 per cent to 1.8 per cent – still below the bank’s official two per cent target.
The bank’s job is made more difficult because the lower dollar is temporarily boosting inflation, while lower oil prices are driving inflation lower.
And yet the price of crude has regained some of its lost ground in recent weeks, rising above roughly $60 (U.S.) per barrel. That has helped lift the Canadian dollar.
“All of this has certainly made it more challenging to distinguish the trend from the temporary,” Mr. Poloz said.
He complained there are “a lot of moving parts,” clouding the inflation outlook.
In a mostly upbeat speech, Mr. Poloz said the Canadian economy remains on track to reach full capacity and sustainable growth by late 2016. “We project it will take 18 months or so to get there,” he said.
Ignoring recent signs of economic weakness – both in Canada and the U.S. – the Mr. Poloz instead highlighted a number of positive trends, including a rebound in key exports outside the oil patch, a decline in long-term unemployment, more prime-age Canadians joining the labour force and early signs of a recovery in the creation of new companies.
A basket of key non-energy exports tracked by the bank is up 15 per cent in the 12 months through March, he pointed out. That includes jumps of 20 per cent in aerospace, 11 per cent for machinery and equipment and 4.5 per cent in foreign tourism demand.
Mr. Poloz also said he’s also upbeat about business investment, outside the energy sector. He pointed out that companies selling into the U.S. are starting to “feel capacity constraints” and may need to “step up investment.”
Many economist are much less optimistic, pointing to a slowdown in U.S. growth early this year and still weak business investment across most industries in Canada.
Mr. Poloz also highlighted how lower interest rates and cheaper gasoline are helping Canadians. He said a household renewing a $100,000 mortgage is saving $250 a year on interest payments. Likewise, lower gasoline are saving households $500 a year, he said.
The Bank of Canada has kept its key interest rate unchanged at 0.75 per cent since January, when it surprised investors with a quarter-percentage-point rate cut.
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