OTTAWA (Reuters) - The trend in Canadian economic growth is likely “quieter” than the rebound in the third quarter suggested, which will mean the final quarter of the year should look softer, Bank of Canada Governor Stephen Poloz told Reuters in an interview on Friday.
Canada was in a mild recession in the first half of the year and although growth resumed in the third quarter, early data has pointed to a weak start to the last quarter of 2015. This is made even more concerning by the recent renewed drop in the price of oil, a major export for Canada.
“The third quarter definitely had a little more to it than we would have expected just because of the child care benefit checks and a couple of rebound things from the bad weather in Q1, Q2,” Poloz said.
“I think the underlying trend in the economy is a little quieter than Q3 suggested, which we said, so Q4 should look a little softer than Q3,” he said.
Asked if he is optimistic about Canada’s economic recovery, Poloz said “cautiously so”.
The Bank of Canada cut interest rates twice this year to try to offset the shock from cheaper oil. The lower rates, drop in oil and the start of rate hikes in the United States have all served to knock the Canadian dollar down nearly 20 percent against the greenback this year.
The currency flirted with more than 11-year lows on Friday before managing a modest bounce. [CAD/]
While some in the market feel that the central bank governor prefers a weaker Canadian dollar as it benefits the country’s exporters, Poloz said he has always tried to speak neutrally about the currency.
“It is never my intention to influence the currency through what I say,” Poloz said, pointing to the strong correlation between the loonie and oil prices.
“The proof is in the chart ... which is the currency with the oil price. I certainly have no ability to move the price of oil but the exchange rate has followed it like a pair of train tracks.”
Asked about the Bank of Canada’s 2 percent inflation target, which is up for renewal next year, Poloz said the updated view that the central could take rates as low as minus 0.5 percent if needed “shifts the argument.”
“It would be a high bar to change it and I think the learning that you can take interest rates lower than we thought before makes the bar higher,” he said.
Reporting by Leah Schnurr and Randall Palmer; Editing by Meredith Mazzilli