WASHINGTON (Reuters) - Canadians would be working more hours if the nation’s recovery were truly self-sustaining, Bank of Canada Governor Stephen Poloz said on Friday, casting a different light on the surge in employment in September.
Poloz, who will be presenting the central bank’s Monetary Policy Report on Oct. 22, also said a lot of the price hikes Canada has seen recently were temporary and should be ignored in setting monetary policy.
Despite his cautionary notes, he said it was important to recognize that no country was forecasting a recession or deflation, and the International Monetary Fund’s global forecast was balanced and largely positive.
He made his remarks to Reuters and a reporter for another news outlet on the sidelines of the IMF’s fall meeting.
His comments on hours worked are important because Poloz views labor market slack as a key indicator that will help drive a decision on when to start hiking overnight interest rates. Rates have been frozen at 1 percent for four years.
Poloz welcomed a government report on Friday that showed the unemployment rate fell to 6.8 percent last month from 7.0 percent in August, as 74,000 new jobs were created, almost all full-time positions.
But he said the number of hours worked in September was only 0.2 percent higher than a year earlier.
“An economy that’s actually growing in a self-sustaining way is going to generate quite a bit more draw on the labor market than that,” he said. “When you start talking about slack, it’s going to take a substantial, cumulative series of good reports to begin to put a dent in that.”
Canadian inflation has recovered in recent months from the bottom end of the central bank’s 1 percent to 3 percent target range to 2.1 percent in August, but the bank was still seeing a lot of the price rises as one-off and it’s important to “see through” those, Poloz said.
The bank will publish an underlying rate in its monetary policy report, he added.
Asked if the United States was back to being the main locomotive of the global economy, Poloz said emerging markets accounted for half the world and were doing better than the United States, and that quite a bit of U.S. growth was induced by a loose monetary policy. “It’s not a locomotive of any kind until it’s doing it by itself,” he said.
Th neutral interest rate - on that would be neither stimulative nor contractionary - was probably 3 percent to 4 percent on both sides of the border, he said, meaning that a huge amount of stimulus was still in place. The Federal Reserve has held U.S. overnight rates close to zero since late 2008.
During the IMF meetings there was some discussion about the increasing role of the Chinese renminbi. Asked what effect greater internationalization of China’s currency would have, Poloz said it would improve trade.
Canadian companies, for example, usually have to trade in U.S. dollars, and this entails two sets of foreign exchange fees: once from the renminbi into U.S. dollars, and then from U.S. dollars into Canadian dollars. To trade directly in renminbi would save one set of fees.
“A lot of businesses say it would save them money,” he said. “That would be progress for trade.”
(The story was refiled to fix the day of the week in the first paragraph and to correct spelling errors in the twelfth paragraph)
Reporting by Randall Palmer; Editing by Tim Ahmann