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Poloz expects rates to rise 'a bit' but unsure on timing

5/21/2019 | Posted in Interest Rates by Paul DeAdder | Back to Main Blog Page

Stephen Poloz Bank of Canada

Bank of Canada Governor Stephen Poloz said he sees the slowdown in Canada’s economy as temporary and that interest rates will likely go up – he just doesn’t know when and by how much.

“The natural tendency is for interest rates to still go up a bit. I don’t really know how much a bit is, and what the timing might be,” Poloz said in an interview with BNN Bloomberg’s Amanda Lang on Thursday after the central bank published its annual Financial System Review. 

“But it depends on our forecast coming true that the slowdown is temporary and getting through all that and getting back on the track we were [on] say a year ago.”   

The central bank has raised its benchmark interest rate five times since July 2017, with its last increase in October, but has toned down its narrative on future hikes amid global economic uncertainty.   

Poloz pointed to headwinds such as Canadian household debt, the uncertainty around the future of the new North American Free Trade Agreement and “the bigger uncertainty around the U.S. trade war with everybody” as important considerations for the future path of rates.

“All of those things are kind of holding things back and the lower interest rates kind of push back and keep us at unemployment at a 40 or 50 year-low. So that’s balance,” Poloz said. “And that balance can shift when some of those headwinds dissipate.”

“It’s like pushing something up a hill.”

When it comes to trade specifically, the Canadian central bank governor said while the effects of the ongoing disputes are hitting some sectors quite hard, the actual direct effects of the trade war overall are “quite modest.”

“The main thing of what they’ve done is they’ve slowed down investment,” Poloz said. “Sentiment can turn around very quickly if there’s a resolution. That’s why the stock market goes up every time it looks like [the U.S. and China] has got a deal.”

Poloz added that if sentiment goes up, investment will recover and the global economy will be back in a scenario where it can grow for a long time.

“But if we continue to escalate, then of course, we’re asking for trouble,” he said. “And we’ll deal with that when we come to it. Right now, we have to play both sides of this because both risks are similarly likely.”

Source: BNN Bloomberg

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