Poloz signals rate hike to stay on back burner

Article by David Parkinson, The Globe and Mail, July 17, 2014

“Stephen Poloz’s “serial disappointment” in the global economy suggests that a Bank of Canada interest rate hike could still be as much as two years away.

The central bank governor cautioned Wednesday that despite Canada’s recent surprise surge in consumer prices, the stubborn lack of traction in global growth is delaying Canada’s recovery and will constrain inflation over the longer run.

His comments came after the central bank issued new economic forecasts that raised inflation projections for this year, but cut economic growth forecasts and projected the economy won’t return to full capacity until mid-2016, months later than previously anticipated.

In a press conference following the release of the central bank’s quarterly Monetary Policy Report, Mr. Poloz acknowledged that the recent surprise jump in Canada’s inflation rate, to above the Bank of Canada’s 2-per-cent policy target, has moved the economy away from the risks of very low inflation that it had feared a few months ago.

Nevertheless, he hammered home the point that stubbornly slower-than-expected economic growth, both at home and in export markets, has created a longer-lasting risk of lower-than-target inflation.

“The serial disappointment with global economic performance for the past several years … means that we remain preoccupied with downside risks to economic activity and the fundamental drivers of inflation,” he said.

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