Road to neutral range of rates still 'highly uncertain' – BoC

Road to neutral range of rates still 'highly uncertain' – BoC

Road to neutral range of rates still

The Bank of Canada’s Governor has said that while interest rates need to move up to a neutral range over time, the path towards that state remains “highly uncertain” as the full impact of higher rates on indebted Canadians remains to be seen.

Late last week, Stephen Poloz stated that the central bank is not in a hurry to resume its fiscal tightening, with the institution having adopted a measured approach after a slew of increases that has left many Canadians teetering dangerously close towards insolvency.

“Given these elevated levels of debt, raising rates will have more of an impact on the overall economy than in the past,” Poloz told Reuters.

Latest BoC figures indicated that the average Canadian household’s debt for every dollar of its income is now at more than $1.70.

Read more: BoC hike next month not likely – DLC’s Cooper

The bank’s Governor stressed that its current approach makes the most sense considering the tumultuous global trade situation, along with recent economic data giving mixed messages.

“An escalation of the U.S.-led trade war would, or course, be negative for the outlook, but a resolution would be a source of new lift for the global and Canadian economies,” Poloz said.

“Let’s not lose sight of the fact that the labour market remains extremely strong,” he added. “So there are encouraging signs … it’s a bit of a mix.”

Market observers predicted that the central bank will keep its rates flat during its next announcement on March 6.

“The comments today were slightly more dovish than prior communications from the bank, given that the Governor conceded that the path back to neutral is not clear at the moment,” according to Royce Mendes of CIBC Capital Markets.

“Although job growth has been stronger than expected, wage gains have moderated and inflation pressures are muted,” Dominion Lending Centres chief economist Sherry Cooper wrote in a recent note.