OTTAWA (Reuters) - Bank of Canada Governor Stephen Poloz struck a notably upbeat tone on Wednesday, predicting the Canadian economy would start to strengthen and its potential for growth would increase as the U.S. recovery took hold.
“Evidence suggests we are now close to the tipping point from improving confidence into expanding capacity,” he said in the prepared text of a speech to the Vancouver Board of Trade.
In his second speech since becoming governor on June 3, Poloz said he anticipated the Canadian economy would “normalize and growth will become natural” rather than relying on low interest rates. The Bank of Canada has held its key rate at 1 percent since September 2010.
Poloz predicted the potential for growth in Canada -- the speed limit at which the economy can grow without fueling inflation -- would increase as businesses invest and expand their capacity. That could mean the economy takes longer to absorb excess slack, making it less urgent to increase interest rates.
Poloz did not give any guidance as to when the central bank might next alter rates but said “policy rates in Canada will be higher than they are today” and said short-term interest rates would be above inflation.
Poloz spoke just hours before a highly-anticipated announcement from the U.S. Federal Reserve. The Fed is expected to make a modest reduction to its $85 billion per month bond-buying program, in a nod to economic progress made over the past year.
Poloz said Fed tapering would be “another welcome sign that things are getting back to natural growth” and would show the underlying momentum of the U.S. economy was expected to hold.
Reporting by David Ljunggren; Editing by Louise Egan