GO
Loading...

UPDATE 1-Bank of Canada head says rates on hold until data improves

Louise Egan and Randall Palmer
Tuesday, 7 Jan 2014 | 4:13 PM ET

* Poloz remarks follow finance minister's controversial comments

* Sees policy rate on hold, dependent on data flow

* Says long-term market rates may come under upward pressure due to tapering

OTTAWA, Jan 7 (Reuters) - The Bank of Canada should keep its key interest rate on hold until the data persuades it otherwise, central bank chief Stephen Poloz said on Tuesday, adding that he was not worried about calls from some international players to tighten.

His comments follow controversial remarks by Canada's finance minister on Sunday suggesting there would be pressure to raise interest rates in 2014.

"For us, minimizing the risks of making a big mistake here is what we're trying to do, and that tells us that we should be holding rates where they are until the data flow changes our mind," Poloz said in an interview with CBC television.

Asked on Sunday about the potential for higher rates in 2014, Finance Minister Jim Flaherty told CTV television there would be some pressure to tighten because of the U.S. Federal Reserve scaling back its bond-purchasing program.

He also cited reports by the Organisation for Economic Co-operation and Development and the International Monetary Fund recommending rate increases.

"I think the pressure will be there because the Fed in the U.S. should stop printing money, and taper off as they say ... And the OECD and the IMF have both said to Canada, we ought to let our interest rates go up a bit, so there will be some pressure there for that to happen," Flaherty said.

Flaherty's remarks spurred some criticism that he appeared to be meddling in the day-to-day implementation of monetary policy, which is the domain of the Bank of Canada and supposed to be off limits to the government of the day.

His comments on the outlook also appeared to contradict the central bank chief, who has been signaling rates are on hold for the foreseeable future.

The CBC cited Poloz as saying he was not worried by international calls for rate hikes and that his decisions would be based on Canadian economic factors.

He agreed there would be upward pressure on rates this year, but he referred specifically to long-term market rates, not the rate set by the central bank, as the U.S. and global economies strengthen and stimulus is curbed.

"So as a tapering occurs we might expect to see, as we saw in the summer, some increases in long-term rates, (although) most of it seems to be priced in," Poloz said.

Adjusting the central bank's target for the overnight rate, on the other hand, is a tool that is available "but we have to consider in the broader context what impact would it have," he said.

Analysts in a Reuters poll have forecast the Bank of Canada will begin raising its main policy rate in the second quarter of 2015.