MNI POLICY:BOC's Poloz: Higher Rates Still Coming, Gradually>

By Courtney Tower

     OTTAWA (MNI) - Following are the key points from Bank of Canada 

Governor Stephen Poloz's speech in Moncton, New Brunswick, Thursday, to  

Economic Council and Chamber of Commerce audiences, in which he 

reiterated that the BOC will be raising interest rates gradually. 

     - In a speech devoted to the benefits, the upside, of the so-called 

"creative disruption" brought on by new digital technologies, Poloz said 

they had nevertheless increased uncertainty for managing the economy. 

There already was "a great deal of uncertainty about the state of the 

economy and the prospects for growth and inflation," he said. That was 

heightened by increasing difficulty in measuring supply and demand in 

the economy as digital technology has changed investing patterns. Still, 

the Bank knows that "higher interest rates will be warranted to achieve 

our inflation target." However, the BOC will keep a gradual, data 

dependent approach: not to too slowly and encourage inflation, nor too 

quickly and choke off economic growth. 

     - The Canadian economy is operating "essentially right around 

capacity," Poloz said. Inflation at 2.8% had eight-tenths of that coming 

from temporary impacts of gasoline costs (0.5 percentage points) and 

cost of air travel (0.3 points). Removal or mitigation of these would 

bring headline inflation to the 2.0% target. The Bank was still 

struggling with the uncertainties of how sensitive Canadians are to 

higher interest rates, given high household debt, and of the extent to 

which business decisions are slowed by uncertainty related to NAFTA 

negotiations and global trade policy. 

     - On the benefits side, Poloz cited five ways in which value is 

being created by the new digital technologies. They were, he said: 

higher profits for companies; higher real wages for employees, new types 

of jobs created; new jobs creating more income that supports growth in 

other sectors; widened growth opportunities even in traditional working 

sectors. 

     - As examples of the benefits spreading out from new spending by 

workers earning higher salaries, Poloz said that this supports jobs and 

growth in unrelated but more traditional areas of the economy - 

construction, renovation, maintenance, manufacturing, tourism. The fifth 

channel of benefit that Poloz cited, which he said might be the most 

powerful, was that as new technologies spread rapidly throughout the 

Canadian economy they spin off new industries and ventures. He cited as 

examples tractors guided by satellites on Prairie farms, drones that can 

assess the health of crops on land or can monitor assets at the bottom 

on the ocean. 

     - Already in Canada, Poloz said "the computer design system is more 

important to the economy than the auto and aerospace sectors combined." 

Jobs in that sector had risen five times faster than had total 

employment for all Canada, and today "accounts for close to 2% of output 

in the Canadian economy." 

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

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