- Poloz sees pick up in non-energy exports on U.S. strength
- Financial risks are hedging higher; oil is a `setback'
Here is why Bank of Canada Governor Stephen Poloz left interest rates unchanged even in the face of falling oil prices and expectations for another cut.
- Poloz remains optimistic, holding firm about growth in China, the U.S. and globally. “While risks to the world outlook remain and have been reflected in sharp price movements in a range of asset classes, global growth is expected to trend upwards beginning in 2016.”
- Poloz sees signs of a pick up in non-energy exports on the back of a weaker dollar, resilient jobs market and household spending growth.
- Complex nature of restructuring from resources to non-energy exports makes outlook “uncertain.”
- The bank is looking for Prime Minister Justin Trudeau to deliver. While not yet penciling in a boost from the budget, Poloz expects a fiscal jolt to growth from Trudeau’s pledge to run deficits and increase infrastructure spending.
- Inflation matters. The Bank of Canada’s inflation outlook was little changed even with market turmoil. That’s what carried the day here.
There are risks:
- Oil is a “setback,” with recent commodity declines slowing expected recovery and full capacity unlikely before the end of 2017
- If oil falls further, companies will lose money even on their marginal costs, and that means they stop production.
- Financial “vulnerabilities” continue to edge higher.
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