Poloz to Keep Canada Interest Rate Pause on ‘Lowflation’

Early signs of an economy moving toward full economic health probably won’t be enough to prompt Bank of Canada Governor Stephen Poloz to alter the stance of monetary policy today.

The target for overnight loans between commercial banks will remain 1 percent for a 29th meeting in a decision at 10 a.m. New York time, according to all 18 economists surveyed by Bloomberg News. Poloz will speak to reporters from Toronto 30 minutes later.

Poloz has said he’s “neutral” about the next policy move and last week highlighted the risks posed by persistently slow inflation. Today’s statement will maintain that message, even after stronger-than-expected data and price gains exceeded the bank’s last quarterly forecast, said CIBC World Markets economist Peter Buchanan.

Deflation: The Trouble With Falling Prices

“Lowflation” has been the bank’s major concern, Buchanan said. “Too candid a recognition that deflation is less of a threat could see unwanted upward pressure on the currency,” he said, which could crimp export growth.

Poloz sets interest rates aiming inflation at the 2 percent midpoint of a 1 percent to 3 percent target band. The annual inflation rate slowed to 1.1 percent in February from 1.5 percent the month before, Statistics Canada reported March 21. Data for March are scheduled to be published April 17, with economists surveyed by Bloomberg forecasting a 1.4 percent rate.

While price increases have been stronger than 0.9 percent the central bank forecast in January, “it’s unlikely the Bank of Canada will fully back off their inflation concerns,” said Benjamin Reitzes, a senior economist at BMO Capital Markets in Toronto.

Other Improvements

Other economic indicators have shown improvement in the world’s 11th-largest economy. Canadian employment surged in March, climbing almost twice as fast as economists forecast with 42,900 new jobs, and gross domestic product rebounded with a 0.5 percent gain in January. Factory sales in February jumped 1.4 percent, to reach the highest level since 2008 before the last recession.

The consumer-price index in the U.S. rose 1.5 percent in March from a year earlier, a Labor Department report showed yesterday in Washington, which may alleviate concerns about too-low inflation among Federal Reserve policy markers.

The Canadian dollar declined 5.4 percent in the last six months through yesterday, the second-weakest performance after South Africa’s rand among the 16 major currencies tracked by Bloomberg, as Poloz shifted to a neutral policy stance. The weaker dollar may help boost inflation by making imports more expensive, as well as boosting exports, three-quarters of which are bound for the U.S.

Growth Rotation

Policy makers have been counting on a rotation of growth to exports and business spending from indebted consumers. The International Monetary Fund said last week that shift hasn’t yet emerged and said monetary policy should remain stimulative.

Canada may still benefit from demand for exported commodities and the weaker currency according to some executives.

“The drop in the Canadian dollar relative to the U.S. dollar fundamentally helps our business,” Don Althoff, Chief Executive Officer of Calgary-based pipeline operator Veresen Inc., said in an April 11 telephone interview.

To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net

To contact the editors responsible for this story: Paul Badertscher at pbadertscher@bloomberg.net Chris Fournier

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