Canada still needs low borrowing costs – BoC's Poloz

Global economic uncertainty means that the Canadian economy will still benefit from the boost that low borrowing costs can provide, according to the Bank of Canada’s Governor.

In a recent speech in Nunavut’s capital Iqaluit, Stephen Poloz argued that the global slowdown is adding to the burden imposed by a national housing market constrained by stricter mortgage underwriting regulations.

“That is why we said at our last interest rate announcement in March that the economic outlook continues to warrant a policy interest rate that is below the neutral range to help the economy work through this downshift in growth and keep inflation close to target,” Poloz stated, as quoted by BNN Bloomberg.

Poloz added that Canada is in a good place to overcome these rough times, noting that recent GDP numbers point at the temporary nature of the slowdown. He emphasized that the fundamentals, bolstered by a flexible exchange rate, give considerable robustness to the national economy.

The latest GDP readings showed that Canada’s economy exceeded expectations with its 0.3% growth rate in January.

“There are challenges in the Canadian and global economies that we need to manage, but there are clear signs that Canada is adjusting to the challenges,” Poloz said.

“Recent economic data have been generally consistent with our expectation that the period of below-potential growth will prove to be temporary.”

Poloz also cited the expected return of exports and investment to “positive growth” later this year as another good reason for optimism.

The BoC Governor further stated that investors should not use the bank’s neutral rate estimates as indicators of its planned policies. Its latest forecasts place the neutral rate at between 2.5% and 3.5%, against the 1.75% policy rate.

“How we get there and when we ever get there depends on too many things for us to predict,” Poloz said. “I wish markets would not interpret it as such a fine line.”