Poloz says low rates have ‘done their job’

OTTAWA — The Bank of Canada sent out more signals Tuesday that it’s moving closer to an interest-rate hike as the economy continues to strengthen.

Governor Stephen Poloz told the CBC in an interview broadcast Tuesday that rate cuts by the bank amid the oil-price slump have largely accomplished their goal of helping the economy.

The bank reduced its trend-setting rate twice in 2015 to the very low level of 0.5 per cent to help offset the effects of the oil-price shock.

But following an encouraging run in recent months for several economic indicators, the Bank of Canada appears to be preparing for its first increase in nearly seven years.

“The economy is gathering momentum and not just in certain spots, but across a much-wider array,” Poloz said during his interview in Winnipeg.

“It isn’t time to throw a party, but it does suggest that the interest rate cuts we did two years ago have done their job, and that’s important to us.”

Poloz’s remarks came a day after the bank’s second-highest ranking official indicated the governing council was assessing whether the current, considerable level of stimulus provided by rock-bottom rates is still required.

In what was widely viewed as a highly positive or “hawkish” speech Monday, senior deputy governor Carolyn Wilkins said the economy had registered broad-based gains in recent months not seen since before the oil-price collapse.

Poloz echoed Wilkins’ optimism Tuesday.

“We’re encouraged by the data and so people need to be thinking about what their finances would look like were interest rates to be a little higher when they renew their mortgage,” he said.

Markets took note of Poloz’s comments and, for a second day in a row, a statement by a top Bank of Canada official gave a boost to the dollar.

The value of the loonie rose after Wilkins’ remarks, and again Tuesday following Poloz’s comments, to reach its highest level since late February.

However, Poloz also pointed to several lingering uncertainties that could mean the bank may not be ready to increase the rate at its next scheduled announcement on July 12.

He listed “missing elements” in areas like exports and business investment, although he added the latter has started to improve. Poloz also noted the unknowns surrounding economic policy in the U.S.

The recent Bank of Canada comments have also kept analysts busy as they try to reassess precisely when to anticipate the next rate increase.

Frances Donald, senior economist for Manulife Asset Management, wrote in a research note that markets increased the probability of a rate hike by year-end from 30 per cent on Friday to 60 per cent Tuesday.

“The (Bank of Canada) is likely to gradually shift from its ‘decidedly neutral’ tone to more hawkish over the coming months, so markets may be fully priced for a rate hike before they ring in the new year,” Donald wrote.

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