Poloz Says Canada Quite Far From Needing Extraordinary Stimulus

2015-12-08 17:05:42

By Greg Quinn, Bloomberg News

Bank of Canada Governor Stephen Poloz said the nation’s economy remains “quite far” from needing unconventional policies such as quantitative easing to spur growth, with a weaker Canadian dollar and recent rate cuts accelerating the recovery.

Two interest rate cuts this year that have brought the benchmark rate to 0.5 percent helped keep the economy out of a recession following a drop in crude oil prices, Poloz said in an interview Tuesday with Bloomberg TV Canada’s Pamela Ritchie. A weaker Canadian dollar is also helping, he said.

“We believe there’s a reasonable probability that two years from now we’ll be back at 2 percent inflation; the economy operating at full capacity,” Poloz said in the interview. “So if something were to happen that pushed us significantly outside that zone, that’s when we’d need to look at well what are our options,”

In a speech earlier in Toronto, Poloz outlined the tools available to the central bank in case of another crisis, including charging banks for deposits, forward guidance and asset purchases. At the same time, he downplayed the likelihood the tools would be needed.

Asked how far Canada is from needing extraordinary stimulus, Poloz said: “I would say quite far.”

Poloz also refused to characterize Canada’s economic contraction in the first half of this year as a recession, arguing the economy was growing outside of energy. Canada’s economy grew again in the third quarter.

“We still wouldn’t call it a recession, it’s a mild contraction, because it was really a very pinpointed kind of thing, and we could see the other sources of growth continuing to gather momentum,” he said.

Poloz’s January rate cut was one of his biggest decisions since taking office in 2013, surprising investors at the time and triggering the biggest drop in Canada’s dollar since 2011. His rationale that insurance was needed against the damage from crude oil falling below $50 a barrel was borne out as the economy shrank in the first half of the year.

“The staff did a fabulous job of calling that and I think making the policy move did buffer it to some extent,” he said. “Most of the effects are still unfolding.”

 

To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net; Theophilos Argitis at targitis@bloomberg.net

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