Bank of Canada Governor Stephen Poloz reiterated the central bank’s stance to continue with rate hike to the House of Commons Standing Committee on Finance yesterday. In his prepared remarks, Poloz noted that there were “some very positive developments” in the Canadian economy, with “solid momentum” and it “continues to operate near its capacity”. Also, growth is “relatively broad-based across sectors and regions”. He expected the economy to “growth at a rate slightly above its potential over the projection horizon”. And “while there could be further volatility in inflation in coming months, our core measures remain firmly around 2 per cent”. He also highlighted “trade and household indebtedness” as two main risks.
Overall, Poloz said even with last week’s rate hike to 1.75% “monetary remains stimulative”. BoC’s policy rate is “still negative in real terms”. The current estimated neutral is in range of 2.5-3.5%. Poloz said “policy rate will need to rise to neutral to achieve our inflation target.” Though, the ” appropriate pace of increases will depend on our assessment at each fixed announcement date of how the outlook for inflation and related risks are evolving”. BoC will take into account how the economy adjusts to higher rates, as well as global trade policy developments and their implications on inflation outlook.
