(Adds comments on Fed, C$)
By Andrea Hopkins and Leah Schnurr
OTTAWA, April 12 The Bank of Canada did not even
consider cutting interest rates as it left monetary policy
unchanged on Wednesday amid signs of strong growth, but it is
too early to conclude the economic growth is sustainable,
Governor Stephen Poloz said.
Sounding less dovish than in January, when he said
policymakers discussed a possible rate cut, Poloz said the bank
was "decidedly neutral" even as it raised its growth forecast
"Given the data that we've seen in the last few months, I
can quite clearly say no, a rate cut was not on the table at
this time," Poloz told a news conference.
Reiterating its position that material excess capacity
remains in the economy, the central bank nudged up its growth
forecast for 2017 but lowered its projection for potential
growth to reflect "persistently weak investment."
Taken together, the outlooks mean the bank now projects the
output gap to close in the first half of 2018, sooner than the
mid-2018 date predicted in January.
In a report that noted a weakness for every strength, the
bank said business investment remains well below what could be
expected at this stage in the recovery and wage growth remains
subdued, while residential investment has been stronger than
"This is Bank of Canada telling you that they are not going
to touch interest rates anytime soon," said Benjamin Tal, senior
economist at CIBC Capital Markets.
In later testimony to a parliamentary committee, Poloz said
it would be wrong for the bank to try to offset market factors
driving the Canadian dollar, but acknowledged that a weaker
currency is "selectively good" for some sectors, making exports
more competitive but increasing input costs.
The U.S. dollar sank on Wednesday after U.S. President
Donald Trump said the greenback was "getting too strong" and he
would prefer the Federal Reserve keep interest rates low.
Poloz said speculative forces are at work in Toronto's hot
housing market, noting that prices, which rose 33 percent in
March from a year earlier, are divorced from fundamentals.
Senior Deputy Governor Carolyn Wilkins emphasized that while
the bank sets policy independently of the Fed, which has begun
hiking rates, higher U.S. rates will have an impact.
"As the Federal Reserve starts to tighten interest rates,
we're going to quite naturally import some of that rise and in
fact we have seen that," Wilkins told the committee.
(Reporting by Andrea Hopkins and Leah Schnurr; Editing by
Meredith Mazzilli and Leslie Adler)