Bank of Canada’s Stephen Poloz reinforces perception rates are on hold

Bank of Canada Governor Stephen Poloz indicated he’s all but abandoned any bias for higher interest rates, saying officials are simply focused on keeping policy aligned with current economic conditions.

Asked at a press briefing Saturday in Washington whether he’s done with hiking, Poloz said: “That’s a very data dependent question.” He also dismissed the idea the central bank has any specific target for borrowing costs, even though policy makers estimate interest rates would probably need to be higher were the economy not facing headwinds.

“What matters is what forces are acting in the economy,” and what’s the level of interest rates that will bring the economy into balance, said Poloz, who was attending meetings of the International Monetary Fund. “That number is going to change every time something hits the economy, whether it’s a positive thing or a negative thing.”

The comments are consistent with the central bank’s recent efforts to temper previous statements about the need to raise rates. They also bring it more into line with the dovish tilt in global monetary policy. Over the past six weeks, Poloz and his officials have highlighted the need for continued stimulus amid a slowing economy and downplayed the notion they have a precise understanding of where rates would need to settle even if headwinds dissipate.

‘Stimulative’ Policy

Estimates of how high rates will eventually need to go are simply theoretical, and the actual “neutral rate” is an unknown, said Poloz. Regardless, headwinds exist and require the policy rate to remain stimulative, he said.

At the last rate decision on March 6, “we said pretty clearly, conditions warrant a rate of interest below neutral,” Poloz said . “So it’s obvious that we’re still working on some headwinds or things that are keeping the economy getting all the way home. That’s as far as I can go at this stage.”

A good indication of how the economy is doing comes later Monday, when the central bank releases the spring edition of its Business Outlook Survey and Senior Loan Officer Survey, the institution’s last major publications before the April 24 rate announcement and quarterly Monetary Policy Report. Also this week, Statistics Canada releases data on trade, inflation and retail sales.

In Washington, Poloz did provide some insight into the Bank of Canada’s recent change in tone, saying it was a case of “confidence in the outlook eroding as we got a series of data points that were on the wrong side of things.”

Given the weaker data, Poloz said governing council became a “little less confident we would get anywhere close to neutral range in the near term so we better tone down that language to make sure markets understand that that’s not a destination like right away. “We’re trying to inject more conditionality into it,” the governor said.

While markets are pricing in a small chance of a cut over the next year, Poloz said investor expectations seem to be consistent with a belief interest rates will be “on hold for a while.”

“What’s a while, I don’t know,” he said. “Once again, that’s a data dependent notion.”

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