Canada's interest rates to stay low given headwinds: central bank

Tue Sep 20, 2016 2:06pm EDT
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By Leah Schnurr

QUEBEC CITY, Quebec (Reuters) - Canadian interest rates will stay low for longer as the economy faces strong headwinds and business investment is weaker than expected, but government spending on infrastructure will help growth, Bank of Canada Governor Stephen Poloz said on Tuesday.

In a speech suggesting the central bank will remain on the sidelines even as the economy struggles to gain traction, Poloz said businesses need to adjust their expectations for return on investment given the low interest rate environment.

"There is no smoking gun to suggest that the bank is ready to provide more stimulus here. They acknowledge that there are significant headwinds that require in exchange very stimulative monetary policy," said David Tulk, chief Canada macro strategist at TD Securities.

"But it's more just of the view that this is the environment we are sitting in as opposed to saying we need to do something about it," Tulk said.

Canada, a major oil exporter, was hit by the slump in crude prices last year and has struggled to sustainably regain economic momentum since a brief recession in 2015. Wildfires in northern Alberta dealt another blow to growth this year, leading the economy to shrink in the second quarter at the steepest rate since the global financial crisis.

The Bank of Canada, which cut rates twice last year, is hopeful the challenges are temporary and that stronger demand from the United States and a lower Canadian dollar will help revive Canada's export sector.

The Canadian currency firmed slightly against the U.S. dollar after Poloz's speech to economists in Quebec City was released, trading at C$1.3220. It was C$1.3232 before the speech.


Bank of Canada Governor Stephen Poloz speaks during a news conference in Ottawa, Ontario, Canada, July 13, 2016. REUTERS/Chris Wattie