July 12, 2017 / 3:42 PM / a month ago

HIGHLIGHTS-Bank of Canada's Poloz and Wilkins speak after rate hike

TORONTO, July 12 (Reuters) - Below are some key quotes from an appearance on Wednesday by Bank of Canada Governor Stephen Poloz and Senior Deputy Governor Carolyn Wilkins in Ottawa, after the first Canadian rate hike in seven years.

BANK OF CANADA'S POLOZ: ANY ACTION WE TAKE TODAY WILL ONLY HAVE FULL EFFECT ON INFLATION OVER NEXT 18-24 MONTHS

"We need to be targeting inflation in the future, so it is about where we expect inflation to be. Because any action we take today is only going to have its full effect on inflation over the next 18 to 24 months."

BANK OF CANADA'S POLOZ: MANAGING THIS PROCESS IN THE WAY WE ARE RAISES THE ODDS OF A SUSTAINED EXPANSION WITHOUT NEEDING TO STEP ON THE BRAKES

"Managing this process in the way we are here, raises the odds of a sustained expansion, one that does not require actually stepping on the brakes."

POLOZ ON COMMUNICATING POLICY:

"We have come into the habit of giving a speech in between meetings ... in that we transparently described how we're seeing the latest data and so I think people picked up on that and said, 'it looks like the Bank's view is evolving'."

"For us the ideal setting is where everybody is looking at the same data, and everybody is coming to a similar understanding of what's going on and wouldn't be hanging on to the Bank's every word."

POLOZ ON WHETHER RATE HIKE IS REMOVAL OF INSURANCE OR START OF TIGHTENING CYCLE:

"There's no simple answer to that ... If that was the only thing that occurred over the whole time frame, then mechanically we need to remove that insurance, but so many other things have changed in the meantime."

"I'm hesitating to classify it as either one."

POLOZ ON HOW ECONOMY WILL HANDLE MOVE AND INTEREST RATES:

"The most important thing is the economy clearly no longer need as much as stimulus as we've been giving it. But at the same time, we're letting you know that the world has changed enough...So we're monitoring carefully how the economy continues to adjust.

"The economy can handle very well this kind of move today. Of course we'd preface that with the acknowledgement that of course interest rates are still very low.

"In the full course of time, I don't doubt that interest rates will move higher, but there's no predetermined path."

BOC'S WILKINS: RECENT EXPORT DATA HAVE BEEN ENCOURAGING, MONTHLY GDP SHOW BROADENING DEMAND ACROSS SECTORS

"We've seen, at the same time, some export data, more recently, that have been encouraging and some monthly GDP data that showed broadenings not only occurring across demand categories but also across sectors." BOC'S WILKINS: IT'S THE DATA WE GOT SINCE MAY THAT HAS CONFIRMED OR MADE US MORE CONFIDENT IN OUR OUTLOOK

"It's the data that we got since May that has either confirmed or made us even more confident in the outlook that we have." BOC'S POLOZ: CAUTION ON DATA WAS AT ITS PEAK IN JANUARY BECAUSE OF UNCERTAINTIES U.S. ELECTION POSED

"It's our job to be very skeptical of short-term movements in data. So that caution was probably at its peak in January, because of the uncertainties that the U.S. election posed for the economic outlook."

BOC'S POLOZ: IT'S OUR CONFIDENCE THAT HAS INCREASED THROUGH THOSE MONTHS COMPARED TO BEGINNING OF YEAR

"There is an upward revision to our outlook of course because of the data that Caroline mentions but more importantly it's our confidence that has increased through those months compared to where we were at the beginning of the year. So it's that confidence in the outlook that makes us more confident today, to make the change we've made."

BOC'S POLOZ: FINANCIAL STABILITY IS ALWAYS ON THE TABLE AS WE DISCUSS POLICY

"Financial stability is always present on table as we discuss these things."

BOC'S POLOZ: UNCERTAINTY AROUND U.S. TRADE POLICY REMAINS

"That (trade policy) uncertainty I think remains. Certainly, it is very prominent in our BOS (business outlook) survey. It is one of the first things that people say, that they still don't know what's going to happen. And it's not just trade, but also would there a fiscal shock of some magnitude in the U.S."

BOC'S POLOZ: INVESTMENT IN CANADA IS LESS TODAY THAN IT WOULD BE WITHOUT THAT UNCERTAINTY BUT COMPANIES SEEM TO BE SETTING IT ASIDE

"Investment in Canada today is less today than it would be without that uncertainty. But people seem to be setting it aside and sort of getting on with things, so we are seeing a recovery, stronger investment, not as good as it would be without that but still there is one."

BOC'S WILKINS: OUR FORECASTS FOR EXPORTS AND INVESTMENT ARE VERY, VERY PRUDENT; TRIED TO TAKE INTO ACCOUNT UNCERTAINTY THAT'S OUT THERE

"Our forecasts for exports and investment are very, very prudent. You can see in the data, in our charts and we have tried to take into account the uncertainty that is out there. But we do highlight the downside risks."

BOC'S WILKINS: WERE VERY DISAPPOINTED IN Q1 EXPORT DATA BUT RECENT DATA MORE ENCOURAGING

"We were really disappointed in Q1, that's for sure, with the unexpected fall, but the more recent data shows that exports are up across a wide range of categories, goods included. There are some special factors, sales of gold for example. But nonetheless, exports are off to a good start for the second quarter."

BOC'S POLOZ: WE THINK THERE'S STILL SOME ROOM TO GROW ONCE OUTPUT GAP CLOSES

"Whenever there is a long cycle like the one we have been living though, I think you are more attentive to legacy affects ... so permanent scarring that may occur as a result of the prolonged nature of the down cycle, so that would take the form of skills that degrade perhaps, or there is enough structural change that people are no longer qualified to work, or actual exit from the workforce because of discouraged worker effects, and I have mentioned a number of times the youth retreat from the workforce and this sort of thing. So these are all reasons why we think that there is still some room to grow once the gap is closed."

BOC'S WILKINS ON THE EFFECT OF HIGHER INTEREST RATES ON PEOPLE WITH DEBTS:

"We take into account the fact that households are indebted. One way to think of the possible effect is really to look at the higher interest rate. There are people who want to buy a house for the first time and they're affected immediately if mortgage rates increase at the same time. They have a choice of waiting a bit or buying somewhere less expensive or cutting their expenses.

"As for households that already have a mortgage ... between 75 percent and 80 percent have a fixed rate and not everyone is going to have to renew their mortgage this year or next year ... but you have to look at the context (of the rate hike). The economy is growing, jobs will continue to grow, salaries will continue to rise, so it's in a context that is pretty good."

BOC'S POLOZ ON WHETHER RATES WILL GO UP AGAIN THIS YEAR

"I'm not going to make a forecast about the interest rate."

POLOZ ON IMPROVING ECONOMY:

"The most important thing is that this is good news for Canada. That the accumulation of evidence, the growth in our confidence ... should be good news for everybody.

"I know not everybody will think a higher interest rate is good news, but it's a symptom of an improving economy. Interest rates are still very low, so we're coming off a very low level."

POLOZ ON INFRASTRUCTURE PROGRAM:

"At the same time, the infrastructure program is in the background. I say in the background, because there's only certain bits of evidence where it's already showing up. But we know the money's been allocated, so that's something we can look forward to. That's in our model, that's an important part of this closing of the output gap, which is happening. It's not just interest rates that did this work, it's the fiscal part."

BOC'S POLOZ: STILL SOME ADJUSTMENT HAPPENING SINCE OIL PRICE SHOCK

"At the onset of the oil price shock, there was considerable range of opinions on how the economy would respond. What we said then was it would take about two years for the worst of the adjustment to take place, that it was complex, that we'd monitor it along the way and we also said that the other 87 percent of the economy was likely to continue to benefit from the conditions that we found ourselves in."

"Late last year, (the energy sector) did bottom out and it began to contribute to growth again, especially in the first quarter."

"I don't want to give the impression that the adjustment is completely over, because there's certainly still plenty of adjusting going on. There are pain points, there are people still that lost their jobs and don't have another job, they haven't recovered fully."

BOC'S POLOZ: OIL IMPACT IS ENOUGH IN THE REAR VIEW MIRROR NOW, CONTRACTION IN SECTOR APPEARS TO BE COMPLETE

"It's enough in the rear view mirror now and the big thing was the contraction of the sector - that appears to be complete. The companies can go on, obviously they'd prefer a higher oil price to a lower oil price, but in that .... $40 to $60 kind of zone that we've been in for a while now, that's going to become the norm and people have adjusted to that lower price by cutting costs and increasing efficiency." (Reporting by Solarina Ho, Fergal Smith, Susan Taylor in Toronto, David Ljunggren in Ottawa; Editing by Amran Abocar)

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