(Adds comments from press conference)
By Bryn Levy
SASKATOON, Saskatchewan, April 24 Bank of Canada
Governor Stephen Poloz is more hopeful than before about an
export recovery but is not straying from his mantra that an
interest rate cut is just as possible as a hike because the
economic outlook is so uncertain.
"We're expressing true neutrality on that question," Poloz
told reporters after a speech on Thursday when asked if the
bank's next move would be an increase or a decrease in its main
overnight target rate.
"I want to be clear that the outlook as we have it is that
over the next couple of years, almost exactly two years from
now, our modeling suggests that inflation could get back to
about 2 percent. That's assuming all the other things we've got
in there happen, which includes the rebound in exports."
Poloz said he is more confident of exports and business
investment strengthening after gaining a better understanding of
how non-energy exports are performing relative to foreign demand
from a new central bank study published on Thursday.
But if the more upbeat scenario does not materialize and
exports do worse than expected, overall inflation will fall
again and drift further from the bank's 2 percent target, he
"The bank's analysis has given us a more granular
interpretation of the export picture - and gives us more hope
for the recovery of our non-energy export sector," Poloz said in
a speech at a trade and export industry luncheon in Saskatoon,
"There's a great deal of uncertainty around that outlook as
we've expressed clearly today and in the past," he said later in
a news conference.
Poloz had previously confessed to being puzzled by Canada's
lagging exports and said a recovery of the sector was a
prerequisite for full economic comeback.
The study of 31 sectors shows that while some industries had
not rebounded in line with foreign demand, about 55 percent of
non-energy exports have either been performing as expected or
outperforming their foreign demand benchmark.
These industries - which include machinery and equipment,
building materials, pharmaceuticals, metal products and tourism
- should lead the export recovery.
The analysis also found that the recent depreciation of the
Canadian dollar would help some industries, but that the
majority of those sectors that have been doing well are less
likely to benefit from the lower currency.
Poloz said the analysis "feeds critically into our policy
LOWER RATES IN LONG TERM
The Bank of Canada held its main interest rate at 1.0
percent last week. Economists in a Reuters poll predicted it
would stay on the sidelines until the third quarter of 2015,
when it is expected to raise rates by 25 basis points.
Poloz said Canadians should expect rates to be lower than in
the past, even when they return to what is considered a "normal"
"Our economy has room to grow. And, when we do get home,
there is a growing consensus that interest rates will still be
lower than we were accustomed to in the past," Poloz said.
The ingredients are present for an export recovery, which in
turn means that companies will have to invest to expand their
capacity to take on new orders, he added.
"We don't really have a prediction for how long it takes,
but from conversations we're having, we're becoming more
encouraged with time."
The bank's hope is that exports and business investment
become the main drivers of growth as the housing market cools
and over-stretched consumers scale back spending.
Higher consumer energy prices should push total inflation up
in the next few quarters but this will be transitory and
therefore "the downside risks to inflation remain important," he
(Writing by Louise Egan and Randall Palmer; Editing by Phil
Berlowitz and Richard Chang)