Upbeat Bank of Canada says economy at tipping point

Wed Sep 18, 2013 2:18pm EDT
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By Nicole Mordant

VANCOUVER (Reuters) - Bank of Canada Governor Stephen Poloz took a notably upbeat tone on Wednesday, predicting the Canadian economy is about to enter a new phase of growth powered by business investment and exports as the U.S. recovery takes hold.

"Evidence suggests we are now close to the tipping point from improving confidence into expanding capacity," he said in a speech to the Vancouver Board of Trade.

Speaking just before the U.S. Federal Reserve had been expected to announce a modest reduction in its bond-purchasing program, Poloz said there was evidence "we are on our way home" to economic growth that is self-sustaining rather than relying on low interest rates.

The Fed, however, announced on Wednesday that it was maintaining its stimulus program in full for the time being.

The Bank of Canada has held its key rate at 1 percent since September 2010. Analysts surveyed by Reuters expect the bank to keep it at that level until the fourth quarter of 2014, when they predict the bank will raise rates.

The speech provided no obvious hints on the timing of the next rate hike, and while the tone was confidence-building, the underlying message was that a tightening of monetary policy is still a long way off.

Using what he called a "spaghetti-sauce model," Poloz referred to the global financial crisis as a seven-year bubble followed by a seven-year crater, implying the return to normal might not come until 2015.

"Though Poloz has presented a more optimistic view of the economy than was presented in the (Bank of Canada's) September 4 communiqué, today's speech reinforces the wider narrative that policy will need to remain accommodative for a prolonged period of time to nurture the recovery," TD Securities economist Mazen Issa said.   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