Neutral rate range ‘in principle movable’ – BoC’s Poloz

Neutral rate range ‘in principle movable’ – BoC’s Poloz

Neutral rate range ‘in principle movable’ – BoC’s Poloz

The Bank of Canada’s estimated range for the neutral rate is still flexible and open to the influence of global developments, Governor Stephen Poloz said.

Poloz emphasized that the range – which is somewhere between 2.5% and 3.5% -- remains “in principle movable,” and the current elevated household debt levels might actually play a role in keeping neutral rates at lower levels.

“There is increased sensitivity there that one needs to take into account,” Poloz told reporters earlier this week, as quoted by Bloomberg.

“[It] doesn’t mean a mechanical change to it. It just means more of a shading to that risk.”

The BoC Governor cautioned that it remains uncertain what the final rate will be.

“All we know is that as we get closer to it, whatever it is, we’ll begin to see signs that we’re no longer stimulating demand,” Poloz said. “In fact, we know if we cross into the neutral zone we may see signs” that demand is being constrained.

Read more: BoC doublespeak on rate hikes muddies the waters – DLC’s Cooper

In a recent note to investors, CIBC Capital Markets chief economist Avery Shenfeld explained that the BoC should begin dialing down the frequency of its rate hikes, taking into account the state of the Canadian economy.

Latest numbers from Statistics Canada showed that employment numbers have enjoyed a streak of respectable and consistent gains, despite slightly lower wage growth and export strength as of September.

“On balance, this isn’t the kind of data the BoC will need to advance a rate hike into December,” Shenfeld wrote. “But there’s still another jobs report due before that decision date.”


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