November 28, 2016 / 10:02 PM / 2 years ago

UPDATE 1-Would take shock to inflation view for central bank to move -Poloz

OTTAWA, Nov 28 (Reuters) - The Canadian economy has seen some recent pockets of weakness but it would take a significant disruption to the Bank of Canada’s outlook on inflation for the bank to consider more stimulus, Governor Stephen Poloz said on Monday.

Poloz told Bloomberg TV that some of the recent rise in bond yields since the U.S. election of Donald Trump was built into the central bank’s expectations for a gradual normalization of global rates.

As for the possible impact on Canada from Trump, who has pledged to renegotiate the North American Free Trade Agreement, Poloz said the bank only incorporates announced policy decisions into its outlook.

“There haven’t been any of those, so for the time being, we just have to wait and see like everyone else,” he said, though he noted the election rhetoric was a source of concern for the bank and for business sentiment.

The Bank of Canada cut interest rates twice in 2015 in response to the drop in crude prices that sent the Canadian economy into a brief recession.

While the bank has kept rates at 0.5 percent since July 2015, Poloz roiled markets following the bank’s October decision by saying policymakers had considered cutting again.

Asked whether the economy would need to be considerably weaker for the Bank of Canada to consider additional monetary policy options, Poloz said the decision is framed around the outlook for inflation.

The bank currently expects inflation will reach its target of 2 percent on a sustainable basis around mid-2018.

“It would require for us to have a significant departure in that outlook, such as we had from the oil price shock,” Poloz said.

The bank is widely expected to hold rates steady when it meets next week, though some think the market is too complacent about the prospect of another cut.

Poloz said that some of the recent weak data was part of the bank’s expectation that fourth-quarter growth will slow after a strong rebound in the third quarter.

“We should be aware of that pattern and not read too much into it and see through it,” he said.

Poloz’s comments came ahead of a speech and press conference he was scheduled to give later on Monday.

Reporting by Leah Schnurr; Editing by Steve Orlofsky and Meredith Mazzilli

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