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Free AccessBOC's Poloz: MonPol To Move Cautiously Due So Many Unknowns>
--Retransmitting to Add 'move' in First Graph
--Policy Decisions Particularly Data-Driven
By Courtney Tower
OTTAWA (MNI) - The Bank of Canada has become "particularly data
dependent" in its policy interest rate decisions and will move
cautiously because Canada's inflation outlook is so uncertain, Governor
Stephen Poloz said Wednesday.
This is a time of such domestic and foreign-based risks to the
economy, with so many unknowns clouding the outlook for inflation, that
the central bank must "feel our way cautiously as we get closer to home
(the economy working at full capacity)," he said in prepared remarks to
St. John's Board of Trade in Newfoundland.
Poloz, meeting criticism by some financial market analysts that the
Bank gives insufficient forward guidance to its decisions, said that
"there is no predetermined path for interest rates from here."
"Monetary policy will be particularly data dependent in these
circumstances and, as always, we could still be surprised in either
direction," he said.
For the present, Poloz said that after a surge in economic growth
in the first half of this year and with economic growth becoming more
broadly-based and self-sustaining, "recent data point clearly to a
moderation in the second half."
The two interest rate declines to 0.50% in 2015 have been
successful and "at a minimum, that additional stimulus is no longer
needed," he said. Hence, the two rate increases in July and September,
to 1.00%.
Poloz cited four special issues to which the BOC is paying
attention, of which "the first and most important is the evolution of
economic capacity."
Full capacity does not stay fixed, he noted. As private companies
increase investment, they raise their productivity and/or increase their
workforce, so that investment spending increases economic capacity, he
said.
"The protracted (economic) cycle we have been through makes this
issue particularly relevant this time around," he said.
On the inflation front, the growing digital economy may be allowing
goods and services to be produced and delivered more efficiently,
helping keep prices down, as a second unresolved issue, he said.
Still, he pointed out that core measures of inflation have edged
higher since July, "as expected." Going forward, "The temporary factors
that have been holding inflation down should dissipate in the months
ahead, although recent exchange rate developments could affect this
timing."
A third important factor is the slower-than-expected wage growth
than one would expect in an economy approaching full output, possibly in
part due to employment shifting out of higher-paying oil sector jobs.
The Bank must try to understand "the underlying shifts in behaviour"
that this data may be pointing to, Poloz said.
And a fourth was "elevated household debt."
"The Bank will be looking closely to see how the economy's
adjustment to changes in interest rates may differ from that in previous
economic cycles," he said.
Other risks include "geopolitical developments and the rise of
protectionist sentiment in some parts of the world," Poloz said.
In sum, Poloz said that, "although we are confident that the
economy has made significant progress, we cannot be certain of exactly
how far there is left to go."
** MNI OTTAWA **
[TOPICS: M$C$$$,MACDS$]
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.