Poloz: No need for more cuts
Cites evidence that the economy is recovering from drop in oil prices
Bank of Canada Governor Stephen Poloz said there’s no need for additional rate cuts amid evidence the economy is recovering from a drop in oil prices.
Poloz, speaking to lawmakers Tuesday, said a combination of factors including interest rate cuts globally and a rebound in oil prices makes him confident the economy will recover in the coming months. The Bank of Canada made a surprise rate cut in January to buffer the effect of collapsing crude oil prices on incomes and spending. Poloz described the move at the time as “insurance” amid the uncertainty.
“The insurance amount was about right,” Poloz said in comments to the House of Commons finance committee in Ottawa. “Therefore, there is no need for us to take further action to offset the shock that has occurred.”
Poloz said the economic recovery is being supported by his interestrate cut, a weaker currency and stronger U.S. demand for non-energy exports after the oil price shock.
“If you are expecting stronger growth in the second quarter and in the second half, then it would appear you don’t need to cut rates again,” John Clinkard, chief economist at Deutsche Bank Canada, said by phone from Toronto.
Asked about his comments to the Financial Times last month that Canada’s first quarter economic data would be “atrocious,” Poloz said his intention was to emphasize the Bank of Canada had already factored in the slowdown, and so “that markets would not be therefore doubling up on their bets that the Bank of Canada would need to do further actions.”
“At that time we were redoing our forecasts and we needed to do a full assessment to see if the amount of insurance was approximately right,” Poloz said. “In the end we believe it was.”
Poloz reiterated today his rate cut and other positive forces will return the economy to normal by about the end of next year. He also said the oil shock had hit the economy quickly, and reiterated that the positive effects from lower oil would overshadow the negative beginning in the second quarter. The bank’s forecast is underestimating the probable benefits to exporters of stronger U.S. demand, Poloz said.
“Outside of the energy sector, other areas of the economy appear to be doing well,” Poloz said. “The segments of non-energy exports that we expected to lead the recovery are doing so, and we expect this trend to be buttressed by stronger U.S. growth and the lower Canadian dollar.”