Bank of Canada’s Poloz more optimistic about global economy

Bank of Canada Governor Stephen Poloz said on Friday he was more encouraged about the state of the global economy after hearing from his G20 colleagues at the spring meeting of the group than he was heading into the discussions.

In holding key overnight rates steady this week, the Bank of Canada said in its Monetary Policy Report that weaker global growth was one of the biggest downside risks to Canada’s export-driven economy.

“I think compared to when we were in Shanghai (in February), people were in a more positive frame and I think that has partly to do with markets having gone into a slightly calmer phase, but also some better numbers have come in,” Poloz told reporters in a joint news conference with Finance Minister Bill Morneau, noting that China’s first-quarter data was in line with expectations.

“That is the kind of thing that is reassuring. So I come away feeling a little bit more encouraged, I would say, than when I arrived,” he said.

Morneau agreed that the “tone and tenor” from colleagues around the table was better than two months earlier at the Shanghai meeting.

Noting the divergence in inflation risk between the United States and Canada, Poloz said the risk of an overshoot in inflation is “pretty far away” for Canada and that the U.S. economy is “quite a bit ahead of us.”

While investors expect the U.S. Federal Reserve to raise rates later this year, Canada could hold official interest rates at 0.50 percent – near a historic low – into 2017.

Poloz also dismissed the suggestion that a recent rise in the price of oil to about $40 a barrel from $30 a barrel previously was a bad thing for the Canadian economy because it could make exports less competitive by helping to push up the value of the Canadian dollar.

“A drop in oil prices is unambiguously negative for the Canadian economy, all things considered,” Poloz said.

He also said that global central banks still have tools to ease monetary policy if needed.

“There is pretty general agreement amongst the central bankers that we all have ammo, as you put it, we have room to maneuver. I guess it is fair to say we’ve discovered we have more room to maneuver than we thought we had five years ago in the way of the financial crisis,” Poloz said.

Source: Reuters