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OTTAWA – Bank of Canada Governor Stephen Poloz said the target range for his key rate target – estimated by his team at between 2.5% and 3.5% – is in fact "sufficiently uncertain" and could slide up or down.
Poloz's remarks came Monday with his central bank on a clear path of rising rates. He said he would increase the benchmark from his current level of 1.75% to what he calls his neutral policy rate of about 3%, roughly.
Last week, the governor advised Canadians – many of whom are highly indebted – to get used to the idea of 3% rates as a new standard. His warning followed the central bank's fifth interest rate hike in 15 months.
But Poloz noted on Monday that there were also strangers around this landing zone – and that this could change.
"In economics, everything is broader than what we realize in economics, but it remains sufficiently uncertain and … it's, in principle, mobile," Poloz told a journalist's question about the company. And uncertainty about the range estimated after his speech to Canada. – British Chamber of Commerce in London.
"The evolution of the global economy could cause its economy to fluctuate because it has many global ingredients, not just a purely Canadian phenomenon."
The Bank of Canada raises the interest rate in order to prevent inflation from climbing excessively. It describes its neutral interest rate as the ideal access point for the economy to continue to grow, without pushing inflation away from its ideal target of 2%.
The final destination of the Poloz rate hike could have consequences for households, especially those who are heavily indebted, while rates remain low.
Many Canadians have accumulated debt over the last decade because the central bank, like many others in the world, has responded to the 2007-2008 financial crisis by keeping interest rates very low. low. It was part of an international effort to stimulate economic growth.
Poloz said Monday that the Bank of Canada's neutral range corresponds to the estimate for the United States. He noted that there were different ways to calculate the range and that there was uncertainty as to all the parameters that govern it.
"All we know is that the closer we get to the reality – no matter what – we're going to start seeing signs that we're not stimulating demand anymore, and in fact we know that if we move into the neutral zone, we can see signs that we are starting to limit demand, "he said.
Finding the balance will include taking into account the heightened sensitivity and risks badociated with increased debt, Poloz added.
During the question and answer period, Poloz emphasized that neutrality was "not a specific destination, but rather a neighborhood".
A big question was asked about how quickly the rate will go up. Poloz recently reported that the hikes could arrive earlier than planned.
The bank's next rate decision will be announced on December 5th.
Poloz reiterated Monday that the bank would decide the appropriate pace of increases based on the ability of the economy to adjust to the higher interest rates established by previous increases, given the high level of household debt. He also said the central bank would pay special attention to new developments in international trade.
"This means that every meeting is at stake (for a rate hike) based on what the data showed us," he told the audience.
"If the data is surprisingly good, we will look in that direction because it means our story is moving faster than expected. If the data gives us a small break, of course, it means that the data is progressing a little slower than we had integrated it. "
In his speech, Poloz said that the low interest rate era had allowed the global economy to make considerable progress in mitigating the effects of the financial crisis.
He said the lowest rates are no longer needed.
"After a decade of extraordinary efforts by central banks to flood the liquidity markets, the global economy has reached the stage where stimulus can be phased out," Poloz said.
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