MNI POLICY:BOC Off’l:Discussed Whether Gradual Approach Approp

OTTAWA (MNI) – Following are the key points from an address by Senior Deputy Governor Carolyn Wilkins of the Bank of Canada, before the Saskatchewan Trade and Export Partnership in Regina Thursday, presenting an “economic progress report.”

– Wilkins largely repeated a Bank of Canada’s assessment the previous day, which confirmed an economy operating near capacity and with core inflation at target. She said that financial vulnerabilities now “are beginning to ease,” the national housing market appears to be stabilizing, borrowers are adjusting to higher interest rates and other corrective measures. The Bank is “pleased with the continued shift” toward exports and business investment growth. She repeated data confirm “higher interest rates will be required.” With the job market particularly strong and average household incomes rising, and consumer confidence relatively high,” it appeared that “the economy is adjusting well and can adapt to higher interest rates.”

– The BOC will keep a gradual approach, she said, but the central bank discussed whether the gradual approach to raising rates over the past year “remains appropriate” given that “the economy has been operating at potential for the past year.” The BOC also discussed how much momentum remains in the global expansion. The current trade environment was front and center in discussions. On this front, the BOC stressed that protectionist measures can both weigh on growth and incomes and create risks to the upside for inflation. “In weighing these trade-offs, you can be sure that Governing Council will not lose sight of our primary mission,” Wilkins said, referring to inflation.

– On inflation, she said factors pushing headline inflation appeared to be temporary and not a sign of excess demand. Therefore, the BOC expects that inflation could be higher over the next couple of quarters than earlier expected, “but will most likely fall off afterward barring any new price shocks.” She also said the BOC acknowledges there may be more room to grow without causing inflation than is built into its projections.

– Canada’s economy “has shown its resilience, operating near capacity for the past year,” for the first time in the decade since the global financial crisis broke out, Wilkins said. Canada’s economy “is now on a solid footing, although we are feeling headwinds from the trade environment.” Among those headwinds, Wilkins said, uncertainty about the future of NAFTA has made businesses “wary of making investments in capacity,” despite improving global demand and strong United States demand. She repeated the BOC is closely monitoring NAFTA negotiations and trade developments.

– Data indicates the Canadian GDP growth “should average near potential over the next couple of years,” Wilkins said. A shift in demand toward exports and business investment is continuing, she said, despite business wariness currently regarding the latter. Quarterly profiles of GDP growth were expected to be volatile for the rest of 2018, “but still to average around 2 percent.” There could be a third quarter slowdown because of unwinding of temporary factors that pushed up growth to 2.9% in the second quarter, “but (they) do not point to weaker underlying momentum,” Wilkins said.

By Courtney Tower

THURSDAY, SEPTEMBER 6, 2018 – 14:36

–MNI Ottawa Bureau; [email protected]

Source: MNI


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