Pace of Bank of Canada rate hikes could be interrupted, Stephen Poloz says

Dated: December 20 2018

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Pace of Bank of Canada rate hikes could be interrupted, Stephen Poloz says

Latest sign that central bank may put the brakes on increases

Bank of Canada Governor Stephen Poloz’s comments on rates are another sign the central bank - which has tightened monetary policy five times since July 2017 - could put on the brakes amid recent signs the economy is underperforming.Canadian Press

OTTAWA — The pace of interest rate hikes in Canada could be interrupted or sped up depending on the economic circumstances, Bank of Canada Governor Stephen Poloz said on Monday.

Poloz, speaking to CTV in an interview, also said tweets by U.S. President Donald Trump were adding to market uncertainty and compared them to a radio station that was not quite clear.

His comments on rates are another sign the central bank – which has tightened monetary policy five times since July 2017 – could put on the brakes amid recent signs the economy is underperforming.

The bank stayed on the sidelines on Dec. 5 and suggested the pace of future hikes could be more gradual, citing disappointing growth and low oil prices.

Poloz reiterated that the current overnight interest rate of 1.75 per cent needed to reach the “neutral” range of 2.5 to 3.5 per cent, a level that neither stimulates nor brakes growth.

“Getting there is a journey and we expect over time to get there. But it can be interrupted or it could be sped up depending on how the economic data evolve,” he told CTV.

Market expectations of a rate increase on Jan. 9, as reflected in the overnight index swaps markets, are a lowly 2.26 per cent.

Poloz, who described the economy as generally being in a good place, said the biggest risk was the future of the global trading system. The United States is mired in a trade war with China and has imposed tariffs on several major nations.

“There is a risk there that we have rising inflation at the same time as slowing economies. There are no macro-economic tools to fix that combination,” he said. “The risk … is that all the hard work that we’ve gone through can be hurt by the trade front.”

Asked about the impact of regular tweets by Trump, who has recently attacked the Federal Reserve for raising rates, Poloz said it added to market uncertainty.

“It’s become part of the noise that we see every day. It’s the sort of noise though that one never gets used to, I’ll confess,” he said.

Pressed further on his thoughts about the Trump tweets, he likened them to “a radio station that isn’t quite very clear … you get most of what you’re supposed to get and then you can’t figure out the rest.”

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