Governor’s speech suggests Bank of Canada rates won’t be moving up or down any time soon
Bank of Canada Governor Stephen Poloz said policy makers will need to keep interest rates stimulative for now to help the economy adjust to lower oil prices and trade uncertainty, while expressing confidence the country will emerge from its current soft patch.
At the same time, Poloz used much of the speech to tout the economy’s ability to adjust, aided by a flexible exchange rate, and to find new sources of growth. He cited recent data — the latest GDP number showed the economy expanded at a better-than-expected 0.3 per cent pace in January — to highlight his optimism a recent slowdown will be temporary.
Poloz is one of the few central bankers worldwide still talking about the need — at least over time — for rates to move higher. He didn’t make any explicit reference in his speech about raising borrowing costs, but his comment that interest rates remain below neutral suggest the Bank of Canada’s models still see scope for borrowing costs to continue rising in the longer term — unless officials dramatically change their estimates for neutral.
But Poloz used much of the speech to strike a positive tone about the economy’s ability to adjust, even in the face of heightened trade uncertainty. “We only have to look back a few years for an example,” said Poloz, “following the oil price collapse of 2015.”
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