November 20, 2013 / 11:14 PM / 4 years ago

Canadian inflation lower than central bank would like: Poloz

Bank of Canada Governor Stephen Poloz waits to testify before the Senate banking committee in Ottawa November 20, 2013. REUTERS/Chris Wattie

OTTAWA (Reuters) - Bank of Canada Governor Stephen Poloz emphasized weak inflation and growth as top concerns on Wednesday and signaled he differed with the Organization of Economic Co-operation and Development’s suggestion that he should start raising interest rates as soon as late 2014.

“The most important uncertainty, as I’ve highlighted here, is how much of an output gap is there, how much capacity is there in the economy,” Poloz told a Canadian Senate committee.

He described inflation as “below where we’d like it to be” and “behind the game.”

The central bank signaled last month it has no plans to touch interest rates anytime soon, a major policy shift after 18 months of explicitly stating that rate hikes were on the horizon.

Inflation has been persistently weak and growth disappointing, Poloz explained at the time. But he also suggested the bank was unlikely to cut rates because of record-high levels of personal debt.

Inflation was 1.1 percent in September, well below the bank’s 2 percent target. And inflation has not been as high as 2 percent since April 2012.

The median forecast of Canada’s primary securities dealers in a Reuters survey is for the bank to begin raising rates in the second quarter of 2015.

But this week the OECD said that as Canada’s economic slack is absorbed, “monetary stimulus will need to be progressively withdrawn from late 2014 to counter inflationary pressures.”

When asked about that forecast, Poloz said the OECD and the Bank of Canada likely used different models and also possibly exercised judgment differently when viewing the data.

“Those things (inflation and the output gap) together give us the judgments that we’ve reached ... and obviously they differ in a material way according to those point estimates from what the OECD is saying, and that could be because their model is different, their estimates of the output gap can differ according to model, and, of course, their judgments,” he said.

“I respect those, however, they’re different from ours, and it’s our job to reach that final conclusion.”

Economic data since the bank’s last rate decision on October 23 have been mixed, but one of the bank’s biggest concerns is that exports have still not recovered from the 2008-09 recession.

Poloz said the bank’s outlook is roughly the same as a month ago after taking into account the new data.

With additional reporting by Randall Palmer and David Ljunggren in Ottawa, and Alastair Sharp and Leah Schnurr in Toronto; Editing by Jeffrey Hodgson and Jackie Frank

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