Bank of Canada governor shaves forecast

The Canadian Press
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Won’t rule out interest rate cuts in future

Bank of Canada governor Stephen Poloz says he has not ruled out a future cut to interest rates despite evidence disinflationary pressures appear to be waning and his belief that the global and Canadian recoveries are picking up steam.

Bank of Canada Governor Stephen Poloz gestures while speaking at a luncheon in Halifax on March 18. In a recent statement, Poloz said he would pay more attention to anecdotal evidence and such surveys to inform the central bank’s outlook. — Canadian Press file photo

“We are neutral. That means a rate cut cannot be taken off the table at this stage,” Poloz said during a news conference Wednesday. “It will depend on the data flow.”

Poloz made the comment after the central bank decided to keep its trendsetting overnight rate at one per cent, where it has been since September 2010.

The bank also pared back its estimate for first-quarter economic growth by a full point to 1.5 per cent — mostly because of the severe winter weather that began in December — and full-year 2014 growth to 2.3 per cent from 2.5.

Both moves were negative for the Canadian dollar, which slipped 0.37 of a cent to 90.73 cents US following the announcements.

That appears to be what Poloz wanted, said Bank of Montreal chief economist Doug Porter, who noted the bank’s report appeared to stress the negative, even while saying a strengthening U.S. recovery should benefit Canada. That’s because one ingredient for economic growth in Canada is a lower loonie that makes exported goods more competitive south of the border.

“He basically did not want to come off upbeat. I noticed he downplayed that inflation has been a bit higher than expected,” said Porter.

“I think what (bank officials) were trying to say is ... our weaker Canadian dollar will support growth and I think it was that comment that cut the legs out from under the currency today.”

In its tone, the Bank of Canada’s new monetary policy report appeared more positive than the bottom line, reflecting a growing confidence in the global economic recovery and less concern about persistent low inflation and an overly hot housing sector.

Still, Poloz stressed in a teleconference from Toronto — where he was to attend the afternoon funeral of former finance minister Jim Flaherty — that considerable risks remain, including the possibility that Canadian exports won’t recover fully and the potential for a political shock to the world economy from Ukraine’s difficulties with Russia.

While he wouldn’t rule out a rate cut if needed, analyst Jimmy Jean of Desjardins Capital Markets guessed Poloz would likely have also admitted he wouldn’t rule out a rate hike either if he had been asked.

“I don’t think we’re close to either scenario,” he said.

Most economists are pencilling in a rate increase in the summer or fall of 2015, but say the chances of an actual cut from an already low setting are receding with each month of positive economic data, including more normal levels of inflation. The last reading was 1.1 per cent and analysts are expecting Statistics Canada to report on Thursday an annualized rise of about 1.6 per cent in the consumer price index in March.


By Julian Beltrame


Organizations: Bank of Canada, Bank of Montreal chief economist Doug Porter, Desjardins Capital Markets Statistics Canada BeltrameTHE CANADIAN PRESS

Geographic location: U.S., Canada, Toronto Ukraine OTTAWA

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