BOC's Poloz: 'Over Time' Shows There Is No Preset Course

By Courtney Tower

     OTTAWA (MNI) - For Bank of Canada Governor Stephen Poloz, the year ahead in

Canada is to be one of temporary early weakness followed by robust GDP growth

but with the oil industry notably holding back the economy and policy interest

rate hikes.

     The BOC in its quarterly Monetary Policy Report analysis Wednesday inserted

the words "over time" as the period that it would take for the intended moves to

hike the key rate to the estimated neutral rate of 2.5%-3.5%. Poloz elaborated

on that in a press conference to say the insertion was "purposely vague," meant

to introduce "a degree of ambiguity" about future rate hikes.

     The Bank, Poloz said, wanted to convey the message that "there is no preset

course" for future rate decisions, adding "it's all about the data."

     Poloz said the economy was in a temporary slowdown - the fourth quarter in

2018 and the first quarter this year - but is expected to bounce back

thereafter. He said the economy would be back to where it was, when rate hikes

looked more imminent, "in just a few months."

     All that would depend essentially on three areas: how the sharply weakened

oil sector and the slowing Canadian housing market perform, as well as the

uncertain global trade picture. Poloz said future rate decisions would be

"decidedly data dependent."

     Poloz stressed the point, made also in Wednesday's Monetary Policy Report,

that while the oil sector is in trouble and the auto industry has been hit hard

by an intended General Motors departure from decades of production in Oshawa,

Ontario, these two single-biggest exporters nevertheless constitute just 5% of

the whole Canadian economy at present. While business investments in these areas

are in decline, he said the rest of the economy is doing well in investment,

exports, and jobs.

     The economy overall "is on a solid footing," Poloz said. The renewed

adjustments taking place in the oil sector are having a material effect on the

overall economy, creating "a temporary deviation from full capacity."

     He also stressed again that the US-China trade dispute is a two-sided risk,

even as equity and stock markets "are priced for downside risks."

--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com

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