November 21, 2013 / 12:17 AM / 5 years ago

Bank of Canada chief says differs with OECD on outlook

OTTAWA (Reuters) - Bank of Canada Governor Stephen Poloz said on Wednesday the central bank’s economic analysis differs from that of the Organization of Economic Cooperation and Development (OECD), which recommended it start raising interest rates as soon as 2014.

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

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in a report this week that as Canada’s economic slack is absorbed, “monetary stimulus will need to be progressively withdrawn from late 2014 to counter inflationary pressures.”

That contrasts with market expectations of a rate hike in the second quarter of 2015, according to the median forecast in a Reuters poll of primary dealers.

Poloz, asked about the OECD forecast in an appearance before a Senate committee, said economic models and judgments differ from one organization to another. He also said the bank’s own outlook acknowledges an unusual degree of uncertainty and its forecast are more about likely ranges of outcomes than about pinpointing numbers.

“So those differences can show up in the way that this has,” he said.

Poloz said persistently weak inflation and substantial slack in the economy have shaped the bank’s view on the Canadian economy, which is decidedly less upbeat than it was a few months ago.

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


Poloz, who has headed the central bank since June, surprised markets last month by taking a more dovish stance on monetary policy. He made clear the bank won’t touch rates anytime soon, after 18 months of saying 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.

On Wednesday, he said the outlook has not changed much since that last rate decision on October 23.

“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 the lawmakers.

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

And while he pointed out differences in the way the OECD and the Bank of Canada view the future, Poloz was careful not to reveal the bank’s thinking on the precise timing of eventual monetary tightening.

On the heated housing market, which along with record-high household debt has long been a headache for policymakers, Poloz was sanguine.

“Our forecast is a very conservative one and we think the situation will continue to improve. So that’s what a soft landing looks like,” he said.

He shrugged off a recent report that estimated housing prices were over-valued by more than 20 percent, saying it was impossible to pinpoint how much of the high prices were caused by localized issues like immigration versus underlying economic reasons. Still, the risk of a crash has not been ruled out.

“But we agree it’s a risk, and it would be something that would slow the economy down if it were realized,” he said.

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

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