Bank of Canada Governor Stephen Poloz will probably use his first public speech since taking office today to stress that rebuilding business investment is a key challenge, suggesting he won’t tighten monetary policy soon.
The Bank of Canada has said growth needs to be driven by exports and business spending, so comments Poloz makes about the need to encourage investment will probably lead investors to conclude he won’t raise the 1 percent policy interest rate until at least the second half of next year, according to economists from some of Canada’s largest banks.
“It’s an uneven recovery,” said Emanuella Enenajor, an economist at Canadian Imperial Bank of Commerce in Toronto. “That’s why the Bank of Canada is going to continue its stimulative low-rate policy.”
Poloz will speak on “Recovery: Rebuilding Business Confidence in Canada” to the Oakville, Ontario Chamber of Commerce, with remarks published on the central bank’s website at 12:25 p.m. New York time. His speech follows June 6 parliamentary testimony where he said improving confidence will follow signs of stronger exports and lead to increased company spending.
While Statistics Canada reported May 31 that exports rebounded in the first quarter, final domestic demand -- an aggregate of consumption, government spending and business investment -- rose at a 0.6 percent annualized pace, the slowest since the first quarter of 2009.
Under former Governor Mark Carney, the central bank was alone in the Group of Seven in signaling that its next move may be to raise interest rates. Carney said the bank’s tightening bias was meant in part to discourage consumers from adding to record debts.
Analysts including Toronto-Dominion Bank Chief Economist Craig Alexander say that Poloz will probably keep the same approach. “The Bank of Canada is going to continue to signal that the next move in rates is up, but no time soon,” he said.
The central bank’s survey of business executives has shown a decline in business investment intentions in recent quarters, one reason the Toronto-Dominion Bank chief economist yesterday cut his forecast for new expenditures.
Poloz also told lawmakers earlier this month that the Bank of Canada’s inflation-targeting framework is “sacrosanct.” While the bank targets a 2 percent annual rise in consumer prices, Canada’s annual inflation rate fell to 0.4 percent in April, Statistics Canada said last month, the slowest in more than three years.
“There is clearly not sufficient demand in the economy to get inflation back up to the bank’s 2 percent target anytime soon,” said William Robson, President of the C.D. Howe Institute in Toronto, a nonprofit and nonpartisan group that researches economic and social policy and runs a shadow monetary policy council.
“It’s clear the policy rate has to stay low and for longer than policy makers were thinking,” Robson said by telephone.
If Poloz’s remarks emphasize low business confidence, “that would suggest he is likely to continue accommodative monetary policy,” said Erin Weir, an economist at the United Steelworkers union in Toronto. “There’s been some pickup in business investment but I don’t know whether it’s enough to sustain economic growth in a situation where households may not be able to keep spending and governments are trying to cut back.”
Canada’s uneven recovery can be seen in Oakville, a city about 50 kilometers (30 miles) southwest of Toronto. Oakville is home to bankers who commute east to bank headquarters in Toronto, as well as the local headquarters of Ford Motor Co., which in 2011 closed a nearby plant that made the Crown Victoria and Lincoln Town Car sedans. Ford’s Oakville factory currently makes the Ford Edge and Flex and Lincoln MKX and MKT.
Poloz, 57, has a deep background in export-focused companies such as Ford Canada. He was chief executive officer of Export Development Canada, a government trade financing agency, before returning to the central bank where he started his career.
“Poloz seems to be much more focused on the business side and ’Let’s get businesses investing and borrowing,’” said Dawn Desjardins, assistant chief economist at Royal Bank of Canada in Toronto, in an interview.
Poloz’s remarks will be followed by a press conference at 2:15 p.m., 15 minutes after the U.S. Federal Reserve is scheduled to make its interest-rate announcement and 15 minutes before Chairman Ben S. Bernanke has his own press conference in Washington.
The speech also coincides with a meeting of the Bank of Canada’s board of directors. Carney had been originally scheduled to make the speech until he was named Bank of England governor-designate last year.
“We were close to finalizing hosting Governor Carney, then of course he announced that he was leaving,” said John Sawyer, Oakville chamber president, by telephone. “I was shaving, and the lead story on the news was Governor Carney was going to England -- I nearly cut myself.”
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