OTTAWA (Reuters) - Canada is at a “crucial” spot in the economic cycle facing a number of significant uncertainties, Bank of Canada Governor Stephen Poloz said on Tuesday, reiterating the central bank will be cautious in making changes to interest rates.
After two back-to-back hikes this year, the Bank of Canada held interest rates last week, even as it said the economy was at or near full capacity.
With economic growth expected to slow next year after what is shaping up to be a strong 2017, Poloz highlighted the main sources of uncertainty for the central bank, including soft inflation and wage growth, as well as high household debt.
“We are at a crucial spot in the economic cycle, and significant uncertainties are clouding the way forward,” Poloz said.
Poloz’s comments reinforced the dovish tone the central bank struck in its rate decision last week, repeating that the economy was likely to require less monetary stimulus over time but policymakers would be “cautious” in adjusting rates in the future.
Data earlier in the day also bolstered expectations the bank will pause in raising rates for now, with the Canadian economy unexpectedly shrinking in August. Markets now see just a 21.3 percent likelihood the bank will hike at its next meeting in December. BOCWATCH
Poloz told lawmakers the elevated level of household debt represents an ongoing vulnerability to the economy if it is hit by a negative shock and said the central bank will be watching to see how households absorb the higher borrowing costs.
Reporting by Leah Schnurr; editing by Grant McCool and David Gregorio