MNI POLICY:BOC Off'l:Discussed Whether Gradual Approach Approp>

By Courtney Tower

     OTTAWA (MNI) - Following are the key points from an address by 

Senior Deputy Governor Carolyn Wilkins of the Bank of Canada, before the 

Saskatchewan Trade and Export Partnership in Regina Thursday, presenting 

an "economic progress report."  

     - Wilkins largely repeated a Bank of Canada's assessment the 

previous day, which confirmed an economy operating near capacity and 

with core inflation at target. She said that financial vulnerabilities 

now "are beginning to ease," the national housing market appears to be 

stabilizing, borrowers are adjusting to higher interest rates and other 

corrective measures. The Bank is "pleased with the continued shift" 

toward exports and business investment growth. She repeated data confirm 

"higher interest rates will be required." With the job market 

particularly strong and average household incomes rising, and consumer 

confidence relatively high," it appeared that "the economy is adjusting 

well and can adapt to higher interest rates." 

     - The BOC will keep a gradual approach, she said, but the central 

bank discussed whether the gradual approach to raising rates over the 

past year "remains appropriate" given that "the economy has been 

operating at potential for the past year." The BOC also discussed how 

much momentum remains in the global expansion. The current trade 

environment was front and center in discussions. On this front, the BOC 

stressed that protectionist measures can both weigh on growth and 

incomes and create risks to the upside for inflation. "In weighing these 

trade-offs, you can be sure that Governing Council will not lose sight 

of our primary mission," Wilkins said, referring to inflation. 

     - On inflation, she said factors pushing headline inflation 

appeared to be temporary and not a sign of excess demand. Therefore, the 

BOC expects that inflation could be higher over the next couple of 

quarters than earlier expected, "but will most likely fall off afterward 

barring any new price shocks." She also said the BOC acknowledges there 

may be more room to grow without causing inflation than is built into 

its projections. 

     - Canada's economy "has shown its resilience, operating near 

capacity for the past year," for the first time in the decade since the 

global financial crisis broke out, Wilkins said. Canada's economy "is 

now on a solid footing, although we are feeling headwinds from the trade 

environment."  Among those headwinds, Wilkins said, uncertainty about 

the future of NAFTA has made businesses "wary of making investments in 

capacity," despite improving global demand and strong United States 

demand. She repeated the BOC is closely monitoring NAFTA negotiations 

and trade developments. 

     - Data indicates the Canadian GDP growth "should average near 

potential over the next couple of years," Wilkins said. A shift in 

demand toward exports and business investment is continuing, she said,  

despite business wariness currently regarding the latter. Quarterly 

profiles of GDP growth were expected to be volatile for the rest of 

2018, "but still to average around 2 percent." There could be a third 

quarter slowdown because of unwinding of temporary factors that pushed 

up growth to 2.9% in the second quarter, "but (they) do not point to 

weaker underlying momentum," Wilkins said.              

 --MNI Ottawa Bureau; yali.ndiaye@marketnews.com

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