Canada’s Poloz Says Substantial Stimulus Is Appropriate

Bank of Canada Governor Stephen Poloz said the amount of monetary stimulus now in place in the economy remains appropriate, reiterating comments he made at an interest-rate decision last month.

“The Bank judged on October 23 that the substantial monetary policy stimulus in place remained appropriate and decided to maintain the target for the overnight rate at 1 percent,” Poloz told the Senate banking committee in Ottawa today. “Since then, while some new data points have been released, our outlook remains roughly the same.”

Canada’s dollar has weakened against its U.S. counterpart after Poloz’s last decision surprised investors by removing language about the need to raise the 1 percent policy interest rate. Today’s testimony reiterated that “significant slack” remains in the economy and growth is being held back by sluggish business investment and exports.

The dollar’s strength has cut into the profit margins of exporters, who face other difficulties in remaining globally competitive, said Poloz. Business spending will account for more of economic growth as the global economy heals, he said.

Indebted Canadian households are “ready for a break” after years of leading economic growth and adding debt, Poloz said. The housing market isn’t headed for a bubble based on domestic conditions, he said, responding to a question about young families with mortgages that it’s “inevitable” that interest rates will rise at some point.

Poloz also told lawmakers that “we would like inflation to be higher” than where it is now. Consumer prices advanced 1.1 percent in September from a year earlier according to Statistics Canada, near the bottom of the central bank’s 1 percent to 3 percent target band.

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