(Adds Poloz comment on unconventional tools, paragraphs 9-10)
By Andrea Hopkins and Leah Schnurr
OTTAWA Oct 19 The Bank of Canada cut its growth
forecast on Wednesday and said it actively discussed adding more
monetary stimulus to speed up the nation's economic recovery,
surprising financial markets by shifting tone dramatically after
its initial rate decision.
Citing a looming slowdown in Canada's long housing boom and
a weaker outlook for exports, Bank of Canada Governor Stephen
Poloz said the central bank had considered easing monetary
policy but was held back by global uncertainty.
Poloz revealed the stimulus discussion in his opening
statement to reporters more than an hour after publication of
the rate decision, wrong footing financial markets that were not
expecting the dovish shift.
"If you look at the press release at 10, that had a very
balanced tone and you would have said 'Okay, day over, nothing
to see here.' And then you get to the press conference opening
statement and it's almost like a big bombshell," said Emanuella
Enenajor, Canada economist at Bank of America Merrill Lynch.
David Watt, chief economist at HSBC Canada, said there was
"clearly a disconnect" between what the bank said early in the
day and what was communicated to reporters later in the news
"The markets obviously got two different versions, two
different interpretations, of what was said," said Watt. "You
would like to have more consistency."
Poloz has upset market players with unexpected moves in the
past, including a shock January 2015 rate cut.
It was the second time in six months the central bank
admitted it had considered adding more stimulus to the economy
to counter persistent disappointments in growth and exports.
Poloz later told a Senate committee that the bank did not
have a lot of traditional tools left to boost the economy, but
could use unconventional measures like forward guidance, asset
purchases, quantitative easing and negative interest rates.
"They remain in our toolkit and if that's what the situation
calls for, that's where we would need to go," he said.
The bank's comments cemented the belief that Canada will not
raise rates in the foreseeable future, and could even cut rates,
even with the U.S. Federal Reserve expected to hike further.
Asked about the move to reveal the rate cut discussion only
after the rate decision was released, a spokeswoman for the
central bank said Poloz's open statement to reporters is
designed to fill the gap between the quarterly monetary policy
report and press release announcing the rate decision.
"The opening statement ... (offers) insight into which
issues were really on the table during the deliberations and how
those issues influenced the decision," spokeswoman Josianne
Menard said in an email.
"We think this helps people understand better the thinking
behind the decision."
As expected, the bank held its overnight rate at 0.5
percent, where it has been since July 2015, even as it trimmed
GDP forecasts, saying downward pressure on inflation will
continue while economic slack persists.
Poloz said uncertainty around the U.S. election and business
investment, the Canadian housing market, and the commodity cycle
kept the bank from adding stimulus.
(Reporting by Andrea Hopkins and Leah Schnurr; Editing by
Frances Kerry, Bernard Orr)