Canada will need less monetary stimulus overtime as economy operates close to potential, says governor
Bank of Canada Governor Stephen Poloz said the economy will need less monetary stimulus overtime, should it continue to operate “close to potential” and inflation is near target.
But bank will remain cautious in adjusting its interest rate, since a number of “uncertainties” remain, Poloz said the bank’s 2017 Annual Report released on Monday. While much of the downward pressure on inflation in Canada was the result of slack in the economy, other factors could be at play, such as developments in the digital economy, or heightened international competition. The Bank needs to understand these undercurrents to achieve its inflation target,” he added.
The central bank hiked raise twice in 2017, reversing cuts set in 2015 to help the economy adjust to the large drop in oil prices back then.
According to the official, the country’s financial system remained resilient last year, amid new underwriting standards for residential mortgages and the implementation of planned regulatory reforms.
“Increases in house prices were supported by strong demand fundamentals and limited supply, as well as speculative behaviour driven by past price increases. Growth in the national benchmark
house price reached a multi-year high early in the year but then eased, owing, in part, to the introduction of a tax on non-resident purchases in Toronto and its surrounding area,” Poloz said. Tightened underwriting standards for insured mortgages led to a decline in the share of new insured mortgages issued to highly indebted households.
Poloz believes Canadians can look back to 2017 with “considerable satisfaction.” The economy grew by about 3% the highest among the G7 countries. More than 400,000 new jobs were created; and inflation remained very close to the 2% target. “Economic indicators paint a positive picture for 2018 as well,” he added.
