Bank of Canada’s Poloz says path back to neutral rates highly uncertain

February 21, 2019

MONTREAL (Reuters) – Bank of Canada Governor Stephen Poloz reiterated on Thursday that interest rates will need to move up into a neutral range over time, but noted the path back is now “highly uncertain” and any future moves remain “decidedly data-dependent.”

He said the impact of higher interest rates on highly indebted Canadians was a key uncertainty, noting it is one reason why the bank has been gradual in its approach to rising rates.

“We judge that we will need to move our policy rate up into a neutral range over time… However, the path back to that neutral range is highly uncertain,” Poloz told a business audience in Montreal.

Poloz also noted business investment had been less robust than modeled in recent years, mainly due to international trade uncertainty. He said an escalation of the U.S.-led trade war would be negative for the outlook, while a resolution would lift the Canadian economy.

Poloz said that Canada’s inflation-targeting framework has been successful, but noted monetary policy alone cannot solve all economic problems and even highly successful monetary policy can generate harmful side effects.

(Reporting by Allison Lampert, writing by Julie Gordon and Dale Smith)((Reuters Ottawa Bureau +1 613 235 6745; julie.gordon@tr.com)

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