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‘Stimulative’ Policy

Estimates of how high rates will eventually need to go are simply theoretical, and the actual “neutral rate” is an unknown, said Poloz. Regardless, headwinds exist and require the policy rate to remain stimulative, he said.

At the last rate decision on March 6, “we said pretty clearly, conditions warrant a rate of interest below neutral,” Poloz said . “So it’s obvious that we’re still working on some headwinds or things that are keeping the economy getting all the way home. That’s as far as I can go at this stage.”

A good indication of how the economy is doing comes later Monday, when the central bank releases the spring edition of its Business Outlook Survey and Senior Loan Officer Survey, the institution’s last major publications before the April 24 rate announcement and quarterly Monetary Policy Report. Also this week, Statistics Canada releases data on trade, inflation and retail sales.

In Washington, Poloz did provide some insight into the Bank of Canada’s recent change in tone, saying it was a case of “confidence in the outlook eroding as we got a series of data points that were on the wrong side of things.”

Given the weaker data, Poloz said governing council became a “little less confident we would get anywhere close to neutral range in the near term so we better tone down that language to make sure markets understand that that’s not a destination like right away. “We’re trying to inject more conditionality into it,” the governor said.

While markets are pricing in a small chance of a cut over the next year, Poloz said investor expectations seem to be consistent with a belief interest rates will be “on hold for a while.”

“What’s a while, I don’t know,” he said. “Once again, that’s a data dependent notion.”

Bloomberg.com