By David Ljunggren and Alastair Sharp
OSHAWA, Ontario (Reuters) – Canada’s economy has a lot more room to grow, with higher unemployment and more excess capacity than the United States, and if interest rates were raised today Canada would tip into recession, Bank of Canada Governor Stephen Poloz said on Tuesday.
In response to a question U.S. rate hikes, Poloz said the two countries share a similar growth path, but Canada has a lot more room to grow because it has not recovered fully from the oil price shock.
“It is why the interest rate is quite low now, is to give the economy extra room to grow … if we were to raise interest rates back to normal prematurely, like today, the economy would, I’m certain, have a recession,” Poloz said.
The Bank of Canada cut rates twice in 2015. Economists largely expect the bank will not raise rates until 2018. [CA/POLL]
Poloz defended the bank’s dovish outlook, saying it is more important to focus on the downside risks to the economy than the upside risks, even with recent signs of stronger-than-expected growth in jobs, gross domestic product and retail sales.
“I think it would be odd to forget about all those downside risks just because a couple of data points came in a little bit better than expected. We’ve had positive data points in the last three years, too, and they didn’t last, so we’re being very cautious in our outlook,” Poloz told reporters at a news conference.
He declined to say whether a rate cut was off the table, saying he did not want to prejudge the bank’s decision-making process. The bank is set to release its quarterly Monetary Policy Report together with an interest rate announcement on April 12, followed by a news conference.
Poloz’s comments followed a speech in which he said Canada must continue to push for open markets because the costs of protectionism are steep, pushing back against rising anti-trade sentiment in both the United States and Europe.