May 25, 2020 / 5:51 PM / 2 months ago

UPDATE 1-Bank of Canada head: inflation could return to target more slowly

(Adds quote from Poloz speech, background, bylines)

By Kelsey Johnson and David Ljunggren

OTTAWA, May 25 (Reuters) - The Bank of Canada’s policy framework is flexible enough to allow the inflation rate to climb back up to the bank’s 2% target more slowly than on average, Governor Stephen Poloz said on Monday.

The comments by Poloz, whose successor Tiff Macklem takes over on June 3, marked the second time in less than a week that he has made clear current record low interest rates were unlikely to increase any time soon.

Canada’s annual inflation rate in April turned negative for the first time since 2009, pulled down by the coronavirus pandemic and low oil prices. In a video address to the University of Alberta, Poloz said the bank could let inflation rise “more slowly or quickly than on average.”

“Our policy framework does give us flexibility in the time it takes to get inflation back to target which allows us to make tactical decisions to avoid unintentionally making financial stability concerns worse,” he added.

The bank has slashed rates three times since the coronavirus crisis started and launched its first ever program of large scale bond buying program to alleviate stress in financial markets.

Poloz said the bank’s inflation target remained the overarching goal.

To highlight that inflation might take longer than usual to recover, Poloz noted the target “sits within a control range of 1% to 3%.” The bank has traditionally said that its target is the midpoint of the 1% to 3% range.

The bank and the federal government are due to renew the inflation goal next year.

Poloz said the actions taken to counter the effects of the pandemic would lead to higher indebtedness for governments.

“Getting the economy back onto its growth track ... is the surest means of servicing those debts over time,” he said. (Reporting by David Ljunggren; Editing by Richard Chang)

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