Article content continued

At the same time, Poloz used much of the speech to tout the economy’s ability to adjust, aided by a flexible exchange rate, and to find new sources of growth. He cited recent data — the latest GDP number showed the economy expanded at a better-than-expected 0.3 per cent pace in January — to highlight his optimism a recent slowdown will be temporary.

“There are challenges in the Canadian and global economies that we need to manage, but there are clear signs that Canada is adjusting to the challenges,” he said. “Recent economic data have been generally consistent with our expectation that the period of below-potential growth will prove to be temporary.”

Yield Curve

Poloz’s comments are the first since a segment of Canada’s yield curve considered a potential recession signal inverted March 22 for the first time in more than a decade, prompting investors to speculate the Bank of Canada’s next move will be a rate cut instead of an increase.

Poloz is one of the few central bankers worldwide still talking about the need — at least over time — for rates to move higher. He didn’t make any explicit reference in his speech about raising borrowing costs, but his comment that interest rates remain below neutral suggest the Bank of Canada’s models still see scope for borrowing costs to continue rising in the longer term — unless officials dramatically change their estimates for neutral.

The Bank of Canada’s latest estimates put the neutral rate at between 2.5 per cent and 3.5 per cent, versus a policy rate of 1.75 per cent.