MNI POLICY: BOC's Poloz: Economy, Job Market Near Potential>

By Greg Quinn and Anahita Alinejad

     OTTAWA (MNI) - Bank of Canada Governor Stephen Poloz said 

unemployment remains near historic lows in a speech given the week 

after the country reported the biggest rise in joblessness since the 

last recession a decade ago. 

     "Canada's economy is operating close to capacity, inflation is on 

target, labour force participation is up across almost all age groups, 

and the jobless rate is near historic lows," Poloz said in the text of a 

speech he's giving Thursday in Toronto. 

     Poloz didn't give a near-term outlook for the BOC's policy rate in 

a speech focused on long-run trends in the global economy and the 

central bank's 2020 research plans. 

     The BOC held its 1.75% rate on this month citing signs the global 

economy is stabilizing, leading investors to cancel some bets Canada 

would join a global rate-cut cycle next year. 

     The Governor said the biggest domestic vulnerability is "elevated" 

household debts, even as tougher regulations improve the quality of new 

borrowing. 

     Global economic growth will continue to be held back by slower 

population growth and also by investment being weakened by trade 

disputes, Poloz said, referencing the "insidious effect" of moves to 

weaken institutions such as the WTO.

     "In this era, it looks like interest rates are likely to fluctuate 

around historically low levels," on a global scale, Poloz said. "To be 

clear, I am not making a near-term prediction about the Bank of Canada's 

policy rate." 

     One danger of this era is further buildup of global debts that are 

already three times GDP, Poloz said, citing rising household and 

government obligations.

     Proponents of major expansions of government borrowing under Modern 

Monetary Theory should beware it appears to offer an impossible "free 

lunch" and that "it has been tried many times in the past, and the 

record is not pretty."

     The Bank of Canada is adapting its economic models to take greater 

account of changes in financial markets, and that kind of a focus means 

bringing "a degree of flexibility into the inflation-targeting process," 

Poloz said. The BOC has a 2% inflation target that must be renewed under 

an agreement with the federal cabinet in 2021. Policy makers at the BOC 

in the past have mentioned they already have some flexibility on this, 

and that the bar for big changes to a target in place since the 1990s is 

a high one.

     One shift that may come early next year is on digital currencies, 

which Poloz said will need careful regulation as they advance. There 

will always be a need for currencies backed by central banks and even 

for physical cash when digital systems are knocked offline, Poloz said, 

adding the BOC is looking at whether to get into new forms of currency 

itself. 

     "It is an open question whether the Bank of Canada would ever see 

the need to issue a currency in digital form as a substitute for cash. 

Nevertheless, the world of money is evolving very rapidly, so we need to 

develop plans to deal with whatever contingency arises. We will have 

more to say about this early in 2020," Poloz said.

--MNI Ottawa Bureau, +1-613-314-9647, greg.quinn@marketnews.com

[TOPICS: M$C$$$,MACDS$]