* Poloz says watching deflation risk but encouraged by
* Oliver eyes tax cuts, deregulation, labor market reforms
* Says deceased predecessor was admired internationally
(Adds quotes, details and background)
By Louise Egan
WASHINGTON, April 11 Policymakers are closely
watching the risk of deflation in several advanced economies but
they are encouraged by signs of a continuing improvements in the
economic outlook, Bank of Canada Governor Stephen Poloz said on
While not talking specifically about Canada, where inflation
has been below the central bank's 2 percent target for nearly
two years, Poloz's comments shed some light on his thinking
about a top concern domestically ahead of the bank's next
interest rate decision on Wednesday.
"The risk of deflation is something that we all carry around
when inflation is as low as it is," Poloz told reporters after a
meeting of finance ministers and central bank governors from the
Group of 20 leading economies.
"It's not that we fear deflation in the next moment. None of
the real conditions that produce outright deflation, where all
prices and wages are declining at the same time ... are
present," he said.
"What we worry about is, when deflation is especially low,
if there were another shock that came along that put more
downward pressure on the economy, that would introduce the risk
of a deflationary outcome."
Poloz suggested the worst-case scenario he described was
becoming more distant.
"But the outlook continues to heal and to be giving us
encouragement that we are on our way back home," he said,
referring to the risk of deflation in Canada and elsewhere.
The central bank is unanimously expected to hold rates
steady on Wednesday and investors will focus instead on how it
describes the risks around weak inflation in its rate statement
and its quarterly Monetary Policy Report to be released on the
Inflation was 1.1 percent in February, within the bank's
comfort zone of 1 to 3 percent but below its 2 percent target.
Canadian Finance Minister Joe Oliver, who attended his first
international meeting since taking up his post on March 19, also
flagged low inflation as a key risk to the global economy.
Turning to Canada, he would not say what tax cuts he would
introduce after the Conservative government balances its budget
Prime Minister Stephen Harper promised in 2011 to use the
eventual fiscal surplus for tax reform, allowing couples with
children to split the income of the highest earner to reduce
their joint tax burden. With a surplus now in sight, Ottawa has
stayed away from specifics.
"Some of the issues that you talked about and a number of
others will be right at the top of consideration," he said, when
asked to describe the tax cuts on the agenda.
"But as to what proportion would be represented by debt
reduction, reduced taxes or government spending is of course
what the budget will ultimately reveal," he said.
There are several structural reforms Canada will prioritize,
he said, as part of the broader G20 commitment to boost global
economic output by an extra 2 percent over the next five years.
His long list of changes included labor market reforms, tax
reforms, reducing payroll taxes and capital gains taxes,
deregulation of product markets to foster competition, and
changes in regulation to boost trade.
Oliver's international debut as finance minister was marred
by the death on Thursday of his predecessor, Jim Flaherty,
prompting a special tribute at the start of the talks and
expressions of condolences to the Canadian delegation.
"It quickly became obvious to me that he was as admired
around the world as he was and is in Canada," said Oliver.
(Reporting by Louise Egan; Editing by Andrea Ricci and Sandra