MNI: BOC's Confidence Has Grown In Last Six Weeks: BOC's Poloz

By Courtney Tower

     OTTAWA (MNI) - After the Bank of Canada hiked its key policy rate by 25

basis points to 1.50% Wednesday, Governor Stephen Poloz said the BOC's

confidence had grown since the May 30 policy decision.

     The biggest issue on the table was growing trade tensions, he said during a

press conference. Yet, "our confidence has grown in the last six weeks," he

said, in light of Canada's economic performance.

     With inflation on target, the economy operating at close to capacity, wage

growth improving, business investment still positive although moderating in the

face of trade threats, the central bank saw the need to reduce the monetary

stimulus to the economy provided, Poloz said.

     That confidence comes surrounded by myriad risks to the upside and to the

downside, Poloz said, so that for the future he cannot tell how much more

stimulus will have to be removed or at what pace. However, as he and the Bank's

Monetary Policy Report said, as before, the BOC believes future rate hikes are

warranted in order to keep inflation on target.

     Poloz said, as does the MPR, that the effect on Canada's economy of the

United States' aluminum and steel tariffs is modest. 

     But the many possible trade-offs and adjustments that can occur make it

impossible to be sure of the lasting effects. The possible U.S. imposition of

25% tariffs on Canada's auto industry, so integrated with the U.S. industry and

supply chains, might cause a 1% drop in Canadian GDP. That would be not so

serious overall but very hard on thousands of employees and production

locations, Poloz noted. 

     Among the positive factors for Canada's economy was a very strong U.S.

economy, which Senior Deputy Governor Caroline Wilkins described as  stronger

than had been expected "at least in the near term." So also was demand from the

global economy, strong right now although for which trade tensions were a large

threat.

     As he has said so often, future rate decisions would be data dependent.

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

[TOPICS: M$C$$$]