Economy ‘still has room to grow’: BoC
Bank not ‘talking down’ loonie: Poloz
OTTAWA • Even though Bank of Canada officials admit the plunge in oil prices has been a shock to the Canadian economy, they believe it “still has room to grow,” with a strong U.S. recovery and increased business investment eventually lifting job creation and overall output.
But central bankers reject suggestions that they are also “talking down” the Canadian dollar to help that process along, saying the decline in the loonie reflects the country’s disappointing economic performance. “I honestly reject the notion that I’m talking down the dollar,” bank governor Stephen Poloz said Tuesday.
“It’s not about what we did. It’s about how the economy has behaved,” he told reporters at the Group of 20 financial leaders meeting in Istanbul. “It’s only by being open about that and people seeing it happening and, oil prices declining on top of that, that the dollar has moved.”
Mr. Poloz’s comments came on the same day as the Bank of Canada’s No. 2 policymaker emphasized the challenges now facing the economy.
“There is no doubt that the Canadian economy has room to grow. The stronger U.S. economy, a lower [Canadian] dollar and our monetary policy response will work to keep the recovery in Canada on track and get inflation sustainability back to target,” senior deputy governor Carolyn Wilkins told a business audience in Ottawa.
“Achieving the inflation target is consistent with closing the output gap and attaining full employment in a typical business cycle,” she said, adding that “if potential output growth turns out to be lower than we think, we have the tools to bring inflation sustainably back to target.”
But for now, Ms. Wilkins said the economy “is still operating below its potential, and the sharp drop in oil prices is a setback. That is why the Bank of Canada lowered the policy rate a couple weeks ago.”
She added that “understanding the degree of slack in the economy helps us avoid making policy decisions that could trigger inflationary or disinflationary pressures.”
“We don’t want to inadvertently stifle the rebuilding phase of the economy that will need to adjust to a lower price of oil.”
The Bank of Canada shocked markets and economists on Jan. 21 when policymakers lowered their trendsetting lending rate to 0.75% from 1% — where it had stood since September 2010 as the bank waited to see sustained economic growth after the 2008-09 recession.
Recent data, however, has pointed to a softer-than-expected recovery as global growth stumbled — despite positive economic signs in the United States, the world largest economy and Canada’s main trading partner.
In particular, job growth has weakened after an initially strong rebound from the downturn.
Mr. Poloz has cited the drop in oil prices — and the impact on revenues in resources-based provinces — as the major factor for the rate cut. Prior to the drop in crude, most analysts had anticipated the next move would be a rate increase, not a cut. The next rate decision will come March 4.