The Bank of Canada could start hiking rates again “sometime down the road,” although such a move will depend on whether upcoming economic data backs up its assessment that a current slowdown is only a temporary detour, the central bank’s head said on Thursday.
The Bank of Canada has raised interest rates five times since July 2017, although it has stayed on the sidelines in recent decisions as global trade concerns, the slumping oil sector and a weaker housing sector have weighed on the Canadian economy.
The bank again held rates steady on Wednesday but took a more dovish stance than in recent releases, removing wording around the need for “future hikes,” while lowering its growth forecasts for 2019.
But in a televised interview with Maclean’s magazine on Thursday, Governor Stephen Poloz said the central bank believed the slowdown would be temporary, lasting “a couple of quarters,” and implied the worst was already over.
“What we have to do then is wait and see if the data proves to us that we were right about that,” he said. “Assuming we are, then sometime down the road we’ll be able to say: ‘OK, now it’s time to start normalizing again,’ but that remains to be seen.”
He repeated that any move would be data-dependent.
The Bank of Canada estimates its neutral range is between 2.25 and 3.25 per cent. The overnight interest rate is currently at 1.75 per cent.
Poloz also said there was nothing to signal that Canada was on the verge of recession, but when asked if U.S. President Donald Trump’s protectionist trade policies could provoke a new global recession, he said: “Certainly.”
“When you think about the gains in income and living standards that have been created by trade liberalization in a postwar period, to erase even a portion of those would be to risk causing a recession globally,” Poloz said.
© Thomson Reuters 2019
