January 9, 2019 / 4:46 PM / 9 days ago

CORRECTED-HIGHLIGHTS-Bank of Canada's Poloz speaks after rate decision

(Removes reference to Senior Deputy Governor Carolyn Wilkins from headline and first paragraph as she did not attend the press conference)

Jan 9 (Reuters) - Below are some key quotes from a news conference by Bank of Canada Governor Stephen Poloz on Wednesday after the central bank held interest rates steady.

POLOZ ON 90 PCT OF ECONOMY OPERATING AT CAPACITY:

“By all of our readings something like 90 percent of the economy is operating at capacity, having trouble finding workers, struggling to invest and to grow and so on. So we have to pay a lot of attention to that, while at the same time acknowledging that the economy will always have the stresses of some form of something declining.”

POLOZ ON CONFIDENCE GOING TO BE OK:

“In the end I am confident that we are going to be ok through all of this.”

POLOZ ON OPTIMISM MANAGING ECONOMIC ADJUSTMENTS:

“The key for folks, for example in Oshawa, is to focus on how do we adjust and that’s what I’m reading, is that there’s a lot of effort going in to helping people identify opportunities. Maybe they require some training to transition, or that training is available. It makes me feel optimistic that we are going to manage these adjustments reasonably well.”

POLOZ ON FEDERAL TAX MEASURES:

“A competitiveness wedge had opened up based on corporate taxation. Changes that have been put in place provide an offset to that wedge. That competitiveness disadvantage that we had put in which was slowing down exports and investment has been removed as a result of that. That’s pretty significant.”

POLOZ ON DECLINE IN OIL PRICES:

“Our assessment is that the impact of the decline in oil prices that is at the heart of this update is a setback, a delay.”

“The underlying domestic demand indicators are probably going to look quite good over the course of the next four or five months so that picture will be coming into focus. As the snow melts we’ll have a clear view that the economy is back on track and likely to grow above or around 2 percent after that.”

POLOZ ON INFLATION:

“The outlook for inflation for two years from now is around 2 percent. If the economy is growing at above capacity then we’ve got to be watching if there is any room for that growth to happen. If there’s sufficient room that’s ok, if not that will augur for inflation drifting above target two years outwards.”

POLOZ ON ECONOMY:

“There are a whole lot of other things (besides oil and auto industries) going on out there that are actually doing very well. A sector such as I.T. services is growing at 5, 6 or 7 percent per year, the leading job creator and leading export category, leading in many respects, and is now bigger than the auto sector plus the aerospace sector combined.”

POLOZ ON THE HOUSING MARKET:

“We still see a decline in sales and a decline in prices, so it’s clear we have not found a level of balance up until now. But we take confidence from construction starts, that continue at an elevated level, and speaks to the confidence of the public in general, and also the job market is very strong.”

POLOZ ON STABILIZATION IN THE HOUSING MARKET:

“We see a change in demand for smaller houses, after planning for housing development it’s very difficult to change immediately. That takes time, probably until spring, to see that evidence. We also see figures on mortgages have stabilized. So there are many elements of stabilization but it’s not complete up until now.”

POLOZ ON RISING BANKRUPTCIES:

“On bankruptcy statistics, I understand that they have picked up and that, too, is understandable. My understanding of the data points is that they picked up from an extraordinary low level. There is at any point in time always a certain number of unfortunate folks who will lose their job or what have you and go through this process and it wouldn’t be surprising to see things pick up a little bit when interest rates have risen. We are very sensitive to this.”

POLOZ ON THE MORTGAGE RENEWAL CYCLE:

“We are analyzing in extreme detail the mortgage renewal cycle. And when I say extreme, we have anonymized micro-data for every mortgage from 2013 onwards. ... We have very rich data on how cash flows are being affected by the interest rate cycle.”

POLOZ ON RATE HIKE PROCESS:

“We said all along it would be a very gradual, data-dependent process. And we dropped the word ‘gradual’ mainly because markets interpreted that as a very regular interest rate hike process. As we illustrate today, it’s not that regular. It depends on how the economy is doing.”

POLOZ ON USMCA:

“The new NAFTA, even though it will take several months, still, if everything goes well, for all the ratifications to take place, that’s a significant step forward. So our sense in talking to people is that they’re much more prepared to invest today.”

POLOZ ON ECONOMY BEING ON A SOLID FOOTING:

“There is no question in our minds that the economy is on a solid footing. It of course faces risks and in fact we are facing some renewed adjustments in the oil sector which are sufficient to have a macro economic effect on our outlook as laid out here.”

POLOZ ON DEVIATION FROM FULL CAPACITY TO BE TEMPORARY:

“Our analysis implies that deviation from full capacity will be temporary and it’s not long enough to have a material effect on the outlook for inflation which matters to policy, which is 18 months to two years from now. So inflation is on target two years from now then policy is on the right track, is essentially what that implies.”

POLOZ ON RATES STILL HEADING FOR A NEUTRAL RANGE:

“We still believe the economy is heading to what I described before as home, which is operating at full capacity in level space, with growth approximately the same as capacity growth, with inflation on target and with interest rates in a zone where they are no longer stimulating or contracting aggregate demand. That position is what we call a neutral range and as I have said many times in the past we call it a range because there is considerable uncertainty about where it is. You won’t know until you get there whether you are having stimulative or non-stimulative effects on the economy.”

POLOZ ON USE OF WORDS “OVER TIME”:

“It’s meant to inject a degree of ambiguity into the timing of this because obviously we are dealing with developments over the past few months that constitute a delay. We are less close to home than we were three months ago.”

POLOZ ON NEUTRAL RANGE FOR RATES:

“When we get close to it, I think we’re going to know, we’re going to be able to see whether or not we’re having further stimulative effects.”

POLOZ ON TIMING OF FUTURE RATE HIKES

“We still believe that interest rates over time will move higher and that time will depend on how the economy evolves. It’s all about the data and it’s going to take time for us to get what we need out of this data.” (Reporting by Matt Scuffham, Fergal Smith, Anna Mehler Paperny and David Ljunggren Editing by Denny Thomas)

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