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MNI POLICY: Text of Poloz BOC Press Conference Statement
By Greg Quinn
OTTAWA (MNI) - Following is the text of Wednesday's press conference from
BOC Governor Stephen Poloz and Senior Deputy Carolyn Wilkins:
"Good morning. Senior Deputy Governor Wilkins and I are glad to be here to
answer your questions about today's interest rate announcement and our Monetary
Policy Report (MPR). Before turning to your questions, let me briefly summarize
the substance of Governing Council's deliberations.
You will recall that in October we were most occupied with the
deteriorating global outlook. We could see clearly that this was affecting
Canada's economy too -- not only through exports and the manufacturing sector,
but also through the effects of heightened uncertainty on firms' investment
decisions. However, primarily because of a strong recovery in the housing sector
and a healthy labour market, the Canadian economy was demonstrating good
Quite a lot has happened during the past three months. Global economic
growth appears to have bottomed, as shown by an upturn in trade and
manufacturing indicators. Uncertainty remains elevated, of course, and in some
ways has worsened, given rising geopolitical tensions in the Middle East that
had tragic consequences. But the Phase One China-US trade deal and the pending
ratification of CUSMA are positive developments that should lead to lower
business uncertainty over time everywhere, including in Canada.
At the same time, however, indicators of the Canadian economy have turned
decidedly mixed. The National Accounts data for the third quarter of 2019 showed
a significant slowdown, as we expected, and monthly GDP data have extended that
slowdown into the fourth quarter. We also received a string of disappointing
readings related to the Canadian consumer. Vehicle sales, retail sales more
generally, consumer confidence and job growth all softened. We are now
monitoring fourth-quarter growth of only 0.3 percent. At the same time,
third-quarter investment spending was surprisingly strong. Statistics Canada's
historical revisions showed more growth, more investment from government
infrastructure spending and a higher household saving rate than previously
thought. In short, the Canadian economy last year was in a stronger position
than we previously believed -- operating close to capacity with inflation near
Much of Governing Council's deliberations focused on how persistent this
recent slowdown in the domestic economy might be. The Bank's outlook is for a
rebound in growth to about 1.3 percent in the first quarter and a pickup to
about 2 percent after that.
Supporting this outlook is the view that the slowdown in late 2019 may
reflect a greater pass-through from international developments than previously
expected, in which case the recent pickup in global indicators is reassuring.
Another supportive interpretation is that some growth indicators were affected
by temporary factors, including an early winter on the Prairies, pipeline
shutdowns and strikes. A positive reading on employment in December reinforced
this interpretation, along with the understanding that online sales were very
strong this past holiday season and much of these are not captured in Canadian
retail sales data.
Countering this view would be the possibility that Canadian consumers have
turned more cautious, perhaps in response to global political developments,
elevated household debt, or layoffs in the manufacturing sector and in the
public service in certain provinces. This interpretation was reinforced by
negative consumer confidence data during the fourth quarter, higher estimates of
the household savings rate and soft consumer credit growth. These ingredients
might point to a more prolonged consumer slowdown. This is not our forecast, but
we agreed to monitor the data closely with this downside risk in mind. In this
respect, weekly survey data suggest that consumer confidence may have bottomed
sometime in December. Also, housing remains solid in most regions of the
country, even if it is growing less quickly than it did earlier in 2019.
In October, we deliberated whether the downside risks coming from outside
Canada were sufficient to warrant a move to lower interest rates. At that time,
we concluded that they were not, given the trade-off we faced against
potentially fuelling increased financial vulnerabilities.
For this decision, we began the exercise with reduced downside risks coming
from outside Canada, as expected, but at the same time, a crystallization of
some domestic downside risks. After taking these developments on board, our
analysis suggested that overall excess capacity in the Canadian economy has
increased, which will bring a degree of downward pressure on inflation over the
projection horizon. You can see this in Chart 15 of the MPR. Let me make two
comments related to this. First, we believe that the excess capacity is not
uniformly distributed, but is concentrated on the Prairies and in Newfoundland
and Labrador. Second, our estimate of the output gap is based on a partially
updated estimate of the economy's potential. So, there may be more uncertainty
around the current estimate than usual. We will have a more fulsome update in
the April MPR. At the same time, household financial vulnerabilities remain
elevated, although we will be analyzing the positive implications of a higher
household savings rate for those vulnerabilities.
All things considered, then, it was Governing Council's view that the
balance of risks does not warrant lower interest rates at this time. In forming
this view, we weighed the risk that inflation could fall short of target against
the risk that a lower interest rate path would lead to higher financial
vulnerabilities, which could make it even more difficult to attain the inflation
target further down the road. Clearly, this balance can change over time as the
data evolve. In this regard, Governing Council will be watching closely to see
if the recent slowdown in growth is more persistent than forecast. In assessing
incoming data, the Bank will be paying particular attention to developments in
consumer spending, the housing market and business investment."
--MNI Ottawa Bureau; +1 613-314-9647; email: email@example.com
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