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Bank of Canada (BoC) Governor Stephen Poloz said the path toward higher interest rates is “highly uncertain” even as he maintained that borrowing costs eventually need to head higher.
“We judge that we will need to move our policy rates up into a neutral range over time, to a point where it is not stimulating or constraining economic growth,” Poloz said in a speech to the Montreal Chamber of Commerce. “However, the path back to that neutral range is highly uncertain. We will watch the data as they come in and use judgement.”
Poloz cited two reasons for why interest rates have been on hold since October: the impact of higher rates on indebted consumers and risks to the investment outlook.
About the impact of higher rates on indebted households, Poloz said that it is one reason BoC has been “gradual” in its approach to hiking rates. He also said that recent housing activity is a little weaker than expected and recent drops in home sales suggest that “there may have been more froth in certain housing markets than previously thought.”
Meanwhile, Poloz raised the possibility that investment may not be as robust as expected, particularly given the uncertainty around global trade policy.
These uncertainties mean that BoC “will remain decidedly data-dependent as the domestic and international situations evolve," Poloz said.
Investors see only a little chance of another rate hike coming from BoC. But among economists at major banks, there is almost unanimity that at least one more hike is likely at some point this year, according to a Bloomberg report.
