Canadian inflation lower than central bank would like: Poloz

Wed Nov 20, 2013 6:21pm EST
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By Louise Egan

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this week the OECD said that as Canada's economic slack is absorbed, "monetary stimulus will need to be progressively withdrawn from late 2014 to counter inflationary pressures."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

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