Bank of Canada lays out conditions for steady rates

Wed Jul 17, 2013 2:17pm EDT
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Randall Palmer and Louise Egan

OTTAWA (Reuters) - The Bank of Canada said on Wednesday it will hold its benchmark interest rate steady at 1 percent while the economy remains fragile and inflation stays low, but that it sees rates rising if the economy performs in line with expectations.

The policy announcement, the first under new Governor Stephen Poloz, delivered roughly the same message as those of his predecessor, Mark Carney, over the past year: The next move is a rate hike, not a cut, although it won't be any time soon.

Still, Poloz, who took over at the helm of the central bank in June, was more explicit in stating that the continuation of steady rates depended on three key trends.

"As long as there is significant slack in the Canadian economy, the inflation outlook remains muted, and imbalances in the household sector continue to evolve constructively, the considerable monetary policy stimulus currently in place will remain appropriate," Poloz said at a news conference to announce the bank's decision.

"Over time, as the normalization of these conditions unfolds, a gradual normalization of policy interest rates can also be expected, consistent with achieving the 2 percent inflation target."

But he downplayed the so-called hawkish bias in the statement and made it clear any move was still far in the future.

"We never saw that as some sort of signal that we were on an imminent tightening phase or anything like that," he said. "Rather it was to help people understand that these are not normal times. So you need to be more prepared for a gradual return to normality."

Canada's export-reliant economy has struggled to stay on a growth track after a relatively speedy recovery from the world economic crisis. Inflationary pressures remain muted.   Continued...

Bank of Canada Governor Stephen Poloz arrives at a news conference upon the release of the Monetary Policy Report in Ottawa July 17, 2013. REUTERS/Chris Wattie