MNI POLICY:BOC's Poloz:Path To Neutral Rate 'Highly Uncertain'>

By Courtney Tower

     OTTAWA (MNI) - Following are the key points from a speech by Bank 

of Canada Governor Stephen Poloz on Thursday, to the Chamber of Commerce 

of Metropolitan Montreal, saying that the Bank's stated goal of future 

policy rate hikes is on a highly uncertain path: 

     - The BOC has judged that the target for the overnight rate must 

rise from its present 1.75% to a neutral range, seen as between 2.5% and 

3.5%. In a prepared text, Poloz said "the path back to that neutral 

range is highly uncertain." He repeated the path of future rate 

decisions will be "decidedly data dependent," adding, "We will watch the 

data as they come in and use judgment to deal with the uncertainties and 

manage the risks." 

     - Poloz stressed uncertainties facing the Bank, leading with the 

impact higher interest rates would have on highly indebted Canadians. In 

fact, elevated debt that has made the economy more sensitive to higher 

rates is one reason the BOC has been "gradual" in its approach to 

raising rates, he said. Poloz added the Bank is "carefully" monitoring 

the impacts of higher interest rates and new mortgage guidelines on 

housing markets. He pointed out housing activity has been "a little 

weaker" than expected recently. 

     - Another area "of intense interest" is business investment, which 

has been slower "for the past couple of years" than the Bank had 

anticipated, Poloz said. The future of global trade at present "is 

highly uncertain" and it would be negative if "the U.S.-led trade war" 

escalates, he said. "We will remain decidedly dependent as the domestic 

and international situations evolve." 

     - Poloz stressed that the economic uncertainties and 

vulnerabilities at home are not for the central bank alone to address or 

solve. There must be actions by Canadian government on the fiscal side 

to attack consumer debt and other problems, he said, since the Bank has 

only the one policy instrument - controlling inflation. Poloz cited some 

of the mortgage and financial institution measures imposed by the 

federal and some provincial governments as having had their effects. 

"Low and stable inflation may be necessary for sustainable economic 

growth but it is not sufficient on its own," he stressed. 

     - Poloz made the point that, in continuing uncertain times, the 

1.75% key interest rate "continues to deliver stimulus to the economy." 

But in addition to monetary policy, he repeated that macroprudential 

policies are necessary to work alongside of monetary policy. "The 

development, and future refinement, of macroprudential policies shows 

considerable promise" in addressing limitations of Bank of Canada policy 

in managing the economy, he said. Citing BOC simulations, Poloz said 

if the policy rate had remained at 0.5% since 2015, inflation would be 

approaching 3% by now and the GDP level would be 2% higher than it is 

today. However, there would also be side effects that make the economy 

vulnerable to new shocks. 

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

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