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By Courtney Tower
OTTAWA (MNI) - Encouraged by Canada's economic progress, Bank of
Canada Governor Stephen Poloz said Thursday, "we are growing
increasingly confident that the economy will need less monetary stimulus
For a speech presented as three things that keep Poloz awake at
night, he may be a sound sleeper, as he praised on a strong Canadian
economy despite remaining uncertainties that will keep the BOC
Canada's economy "has made tremendous progress over the past year,
and is close to reaching its full potential," he told a Toronto
audience of the Canadian Club.
Overall, in what was essentially a repetition of concerns the
Governor has made before, he said that the Bank would continue to be
cautious about any policy rate changes. It would be, as Poloz and the
Bank have often said, data dependent "in assessing the economy's
sensitivity to interest rates, the evolution of economic capacity, and
the dynamics of both wage growth and inflation."
His quick outline of the Canadian economy being in "a sweet spot,"
with "a majority of Canadian companies (are) running flat out" and
moving to expand their capacities, was folded into his concern for three
long-term problems: cyber threats to the financial system, high house
prices and household debt, the jobs market for young people.
In the order of concerns that he presented, the first was cyber
threats that could cause "a major disruption to our financial system."
Poloz said the Canadian financial system is not immune to cyber
attacks, "despite best-in-class cyber defences."
The closely connected financial institutions and payment systems in
the economy and the BOC are working together "to ensure that we have
robust joint recovery plans in place."
He was confident that everything is being done by all the players
that can be done, yet "the system may be only as robust as its weakest
link, and that keeps me thinking."
Canada's high house prices and its record national household debt
was the second concern, and here the problem and the positive sides
seemed to be balanced.
The elevated vulnerabilities of the state of the housing market
(principally that of Greater Toronto and Greater Vancouver) are showing
signs of "prospective easing" but will remain elevated for a long time,
Special mention was given in the speech to the burgeoning business
of home equity lines of credit (HELOCs), which he warned can add to
Now "about 40% of all housing-backed loans are blended with a HELOC
component," he said. About 40% of HELOC borrowers only pay the interest
and nothing on the principal of their loans each month, so that debt
loads will continue longer than in the past. Some may be using their
HELOC to get money for speculation, such as buying a house with the
intention of flipping it, he said.
New home mortgage rules that are in effect or to take effect
starting next month likely will reduce vulnerability over time, even as
they cause lower growth in the housing sector, Poloz said.
A worry is that new lenders not federally regulated and not
following the new guidelines, may appeal to borrowers not able or
willing to meet the new guidelines and stress tests.
The third long-term preoccupation of the Governor is "the tough job
market for young people." Of more than 350,000 full-time jobs created
this year just 50,000 have gone to young workers, he said.
A decade ago, before the global recession hit, nearly 68% of people
aged 15 to 24 were participating in the labor force, Polos said. That
hit a trough earlier this year at nearly five percentage points lower,
"the lowest in almost 20 years."
Poloz called on business to help, saying "there surely is room for
more ambitious on-the-job training programs in this picture."
Despite the sharp growth in employment this year, the Bank still
sees "ongoing, albeit diminishing, slack in the labor market," Poloz
OTTAWA - MNI **