* Poloz dampens talk of possible interest rate cut
* Says central bank has expressed neutrality on next move
* BoC balancing low inflation with financial system risk
* Says up to market to set C$ level
By Louise Egan
MONTREAL, Dec 12 The Bank of Canada is likely to
keep interest rates on hold "for quite some time," Governor
Stephen Poloz said on Thursday, dampening talk that it was
edging closer to cutting rates in order to combat low inflation.
In a speech in Montreal, he said the central bank was more
worried about downside risks to inflation than upside ones since
inflation is well below a 2 percent target, but he stopped short
of hinting at any easing.
Asked at a news conference afterwards whether it was
accurate that the bank was getting ready to cut, he said: "We
don't know. We've expressed our neutrality on that question,
which is to say that we're even-handed on the two sides of it at
this stage, given what we know today."
He said the bank's move in October and again this month to
stop referring to future rate hikes, following 18 months of more
hawkish language, was a shift to honesty rather than dovishness.
"All we're really doing is being honest that at this stage
we think that interest rates will stay where they are for quite
some time, so issuing a warning they're almost ready to go up is
not the right timing for this," he said.
"Of course, we believe it will happen as the story unfolds
but the destination seems far enough away that we can address
that as we get closer," he said.
CIBC World Markets economist Emanuella Enenajor said the
appearance was "potentially disappointing for those who may have
been looking for Poloz to sound more dovish or talk down the
The Canadian dollar and interest rate futures were little
changed following the speech and press conference.
The central bank has held its key overnight rate at a
near-record low of 1 percent since September 2010.
On Oct. 23 it dropped any reference to tightening rates.
The central bank sounded a touch more dovish on
in its Dec. 4 statement, saying the downside risk to inflation
appeared to be greater than before.
Analysts surveyed by Reuters before the Dec. 4 decision
forecast the bank would begin raising rates in the second
quarter of 2015.
But the statement earlier this month sparked some market
chatter that the bank might suggest rate cuts, especially if
inflation remains weak in coming months. The annual inflation
rate in October dropped to a five-month low of 0.7 percent,
outside the target range of 1 percent to 3 percent.
"As our inflation target is symmetric, we care about both
the upside and downside risks to inflation. When we are already
below target, as we are today, we care more about downside risks
than upside ones," Poloz said in his speech.
"We are prepared to remove monetary stimulus when it's no
longer needed to offset the forces that currently are pulling
inflation below target," he said, repeating the bank's view that
it would take around two years to get inflation back to the
"sacrosanct" two percent target.
Poloz twice batted away questions about whether the Canadian
dollar value was appropriate.
"The Canadian dollar is determined in the markets. We're
focused on inflation, as I've just made really clear. The
Canadian dollar will be whatever it's going to be as markets
grind that out, and so the simple answer to your question is
it's always the right value because the market always gets it
right," he said.
He also said a stable financial system was needed to keep
inflation low and predictable and limit the risk of deflation.
Poloz said there was a risk that soaring household debt,
which is linked to the heated housing market and is fueled in
part by low interest rates, could keep rising and prompt a sharp
"Our current monetary policy weighs this risk against the
risk of inflation falling even further below target. This zone
of balance is relevant today and in prospect, as we expect both
risks to diminish over the next two years or so," he said.
The ratio of household debt to income rose to a record high
163.4 percent in the second quarter, Statistics Canada said in
The ratio for the third quarter will be released on Friday
at 8:30 a.m. EST (1330 GMT).