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BOC'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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