Poloz: Current level of rates appropriate for the 'time being'

Author: Adam Button | Category: Central Banks

Poloz confirms the pause

  • Pace of increases remains 'decidedly data dependent'
  • Repeats that neutral is 'in the neighbourhood' of 2.50-3.50% (1.75% is current rate)
  • Continues to judge rates need to rise into neutral range
  • Signing USMCA will likely support investment rebound
  • Credit growth and strong demand show housing is stabilizing
  • WCS discount has narrowed but spreading to light crude
  • Painful adjustment already developing for Western Canada
  • Data released since Oct MPR "have been on the disappointing side"
  • Economy has less momentum heading into Q4 than expected
  • Much of BOC's deliberations were focused on oil, prices well below MPR projections and demand could be hit by moderating global growth and trade tensions
  • Main risk to outlook is trade tensions between US and other nations, says containing inflation risks would be paramount in an outright trade war
  • Many highly-indebted countries will face difficult adjustment as mortgages reset and rates go up
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This is Poloz's last scheduled speech in 2018 and that makes it highly unlikely he will have time and an opportunity to pivot to something hawkish ahead of the January 1 meeting. The market is pricing in just a 23% chance of a hike at that meeting compared to 65% yesterday but anything above 0% is looking high at the moment.

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