MNI POLICY: BOC's Wilkins: Negative Real Rate Giving Stimulus

By Greg Quinn

     OTTAWA (MNI) - Bank of Canada Senior Deputy Governor Carolyn Wilkins said

the economy is receiving stimulus from a policy interest rate that is less than

both inflation and estimates of a neutral borrowing cost.

     The BOC left its key rate at 1.75% Wednesday, less than the current 2% pace

of consumer price gains. In its April forecast, the Ottawa-based central bank

also said the neutral rate ranged from 2.25% to 3.25%.

     "In real terms, it's negative, which is pretty darn accommodative, and it

also means that it's shy of where we think the neutral interest rate is, which

is a much higher level," Wilkins said at a press conference Thursday in Calgary.

"And so, on those two metrics, it still is accommodative."

     Wilkins said she wouldn't "pre-judge" what policy makers will decide on

interest rates going forward, saying it depends on future growth and what

happens with the "modest" slack in the economy. 

     "It's really that balance of where we think capacity is going that will

dictate where interest rates need to go over time, and we expect the economy to

gain some speed throughout the year," she told reporters after her speech.

     In earlier prepared remarks, she said that the threat of a prolonged global

trade war is a "wild card" to the economic expansion. Future decisions on the

policy rate will focus on trade disputes, oil markets and domestic household

spending.

     Most of the speech reiterated the outlook expressed in Wednesday's rate

decision, including the key phrases that stimulus "remains appropriate" and

policy makers stay "data dependent." Some investors are betting on a rate cut

later this year, but most economists expect the BOC to remain on hold through

the remainder of 2019.

     The growing evidence that Canada's economic growth will accelerate over the

rest of this year must be weighed against the longer-term risk of worsening

trade conflicts, such as between the U.S. and China, Wilkins said. "This remains

a major preoccupation for us," she said about the risk of protracted trade wars.

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

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