| OTTAWA, April 29
OTTAWA, April 29 Bank of Canada Governor Stephen
Poloz indicated on Tuesday that he remains open to the
possibility of an interest rate cut and also said the Canadian
dollar was still high in historical terms, despite a recent 10
Canada's central bank has held its main interest rate steady
for 3-1/2 years and earlier this month once again upheld its
"neutral" stance, suggesting its next move could be either a
rate hike or a cut depending on how the economy unfolds.
"If the significant downside risks were to emerge, and had
changed that balance of risk that we talked about before ...
then you would have to talk about the possibility of having a
lower interest rate in that situation," Poloz told lawmakers on
the House of Commons finance committee when asked if a rate cut
was still on the table.
The balance of risks he referred to are those identified by
the bank in recent rate decisions: inflation could fall further
below the bank's 2 percent target, which would necessitate a
rate cut. This is offset by the risk that lower rates could
exacerbate the near-record high level of household debt in
relation to income.
One scenario that could result in easing monetary policy
would be if the bank's forecast of an export recovery doesn't
materialize, possibly due to a slower U.S. rebound, Poloz said.
"Then we would need to reevaluate that balance of risks with
that new information. That's why I said ... that if something
like that transpired then I can't be taking rate cuts off the
table because I can't forecast everything."
Most economists still expect the bank's next move to be a
rate hike but not until the third quarter of 2015.
Poloz said the weaker Canadian dollar versus the greenback
was unlikely to be a deterrent to business investment, which the
bank sees picking up after exports regain momentum and
Normally, a weaker currency makes it more expensive to
import machinery and equipment needed for companies to expand
"On the margin, the answer to your question is, yes, a 10
percent decline in the dollar makes certain business machinery
that people import more expensive. But the dollar remains, in a
historical sense, quite high relative to where we've been, so
relative to, say, five to 10 years ago, that equipment is quite
a bargain compared to what it was when the Canadian dollar was
much lower," he said.
"So I don't really think that that's going to take too much
of a shine off of that investment story that we've laid out
The currency has been softening for the past year and fell
more sharply since October when Poloz began sounding more
Poloz also repeated that rates are likely to remain lower
for longer than they would have in the past. He said Canadian
policy makers were willing to live with the risk that
"low-for-long" could create asset bubbles because the
alternative was worse.
"If we had not lowered interest rates and invited some of
those risks, we would've had a much more severe recession,
people's pension plans might have been hit pretty hard, all
those kinds of things would've been very negative for our
economy," he said. "So it is a risk, but one that you deem
(Reporting by Louise Egan, Randall Palmer and David Ljunggren
in Ottawa; Alastair Sharp, Leah Schnurr, Cameron French and
Solarina Ho in Toronto; Writing by Louise Egan; Editing by
Jeffrey Hodgson and Ken Wills)