Bank of Canada governor says 2015 cuts did their job

OTTAWA — With the Bank of Canada nearing its next policy decision, expectations of an interest-rate hike increased Wednesday after governor Stephen Poloz reiterated that his 2015 cuts appeared to have done their job.

Poloz made the comments in an interview broadcast on business news channel CNBC. He noted the Canadian economy enjoyed “surprisingly” strong growth in the first three months of 2017 and he expected the pace to stay above potential.

The Canadian dollar climbed to a fourmonth high of 76.44 cents US after Poloz’s comments, which fed speculation about a rate increase as early as its next scheduled announcement in two weeks. The boost lifted the loonie from an average price of 75.83 cents US on Tuesday.

If the central bank increases its key rate, the big Canadian banks are expected to raise their prime rates, driving up the cost of variable rate mortgages, other loans and lines of credit tied to the benchmark rate.

Poloz credited the two rate cuts introduced by the bank in 2015 for helping the economy counteract the effects of the oilprice slump, which began in late 2014. The reductions also helped increase the speed of the adjustment, Poloz added.

“It does look as though those cuts have done their job,” said Poloz.

“But we’re just approaching a new interest rate decision so I don’t want to prejudge. But certainly we need to be at least considering that whole situation now that the capacity, excess capacity, is being used up steadily.”