OTTAWA — Bank of Canada governor Stephen Poloz will deliver a speech Monday that makes no mention of future interest rate increases at a time when the country is grappling with both domestic and global economic challenges.
With increasing concerns about global trade wars and heightened caution from other central banks, markets will scrutinize Poloz’s remarks in Iqaluit, Nunavut, for clues about the path of the bank’s key interest rate.
In his prepared speech, Poloz reiterates the central bank’s position that the benchmark needs to remain low enough to stimulate the economy.
Unlike the bank’s statement less than a month ago, Poloz’s address makes no reference to future rate hikes.
“It is clear that the global economy is performing less well than we believed only a few months ago, and Canada is feeling the effects,” said the speech, which Poloz will give to the Baffin Regional Chamber of Commerce.
Canada’s surprising economic deceleration in the final three months of 2018 and worries about the global outlook have fed market predictions Poloz’s next move could, in fact, be a rate cut.
In Canada, growth — as measured by real gross domestic product — in the fourth quarter slowed to an annualized pace of just 0.4 per cent.
Late last month, recession concerns rose after the yield for Canada’s 10-year bonds fell below the rate on bonds maturing in three months. It was Canada’s first yield-curve inversion since 2007 — at the start of the financial crisis — and investors see it as a sign a recession could be on the way.
To complicate matters, there have also been some recent positives. Last Friday, for instance, new numbers showed the economy grew by an unexpectedly strong 0.3 per cent in January.
Poloz offered some optimism Monday, saying he sees “clear signs” Canada is adjusting well to domestic and international challenges. He argued he still expects the slowdown to be temporary.
The economy, he added, has been showing signs of strength with 350,000 new jobs created over the past year, rising wages and healthy exports in services.
Poloz left the central bank’s key interest rate unchanged last month and said there was more uncertainty about the timing of future hikes because Canada had entered a temporary soft patch, largely created by a drop in oil prices and a cooling housing sector.
It marked the third-straight policy meeting that Poloz kept the rate at 1.75 per cent. Before the quieter stretch, Poloz had responded to Canada’s stronger economic performance with five rate hikes between mid-2017 and last fall.
The bank appeared ready for more increases until it limped to the 2018 finish line.
“Canada’s economic growth slowed late last year, and this weakness is extending into 2019,” Poloz said Monday.
“The data are currently giving us a mixed picture and need to be carefully monitored.”
The next interest-rate announcement is April 24, when the bank will release its latest economic projections.
The bank will also provide an update on its view of the neutral range for interest rates, which is the preferred level when the economy is running at full capacity and when inflation is within its target zone of one to three per cent. The Bank of Canada has estimated it at between 2.5 and 3.5 per cent.
Following last month’s policy decision, the bank said interest rates will still need to rise over time to return to their neutral range.
Andy Blatchford, The Canadian Press