BoC’s Wilkins hints at first rate hike in 7 years
BARRIE MCKENNA
The Globe and Mail
Published Monday, Jun. 12, 2017 1:36PM EDT
A senior Bank of Canada official says economic growth has spread to most regions and industries – the latest clue that the central bank is pondering when to start hiking interest rates.
The bank is seeing “some signs that growth is broadening across regions and sectors,” senior deputy governor Carolyn Wilkins told a business audience Monday in Winnipeg.
“We are seeing the economy pick up,” insisted Ms. Wilkins, Governor Stephen Poloz’s No. 2 executive at the bank.
The Canadian dollar jumped more that half a cent to 74 cents (U.S.) immediately after Ms. Wilkins’s remarks were posted on the bank’s web site.
The improving outlook has prompted the Bank of Canada to start looking ahead to its first rate hike in nearly seven years.
Ms. Wilkins said the central bank will be “assessing” whether to keep pumping low interest fuel into the economy as “growth continues and, ideally broadens further.”
The economy surged ahead at an annual pace of 3.7 per cent in the first quarter.
Bank officials seem relatively unconcerned that inflation has drifted lower in recent months and now sits well below the bank’s two per cent target.
Ms. Wilkins hinted that the bank may have to act preemptively as it anticipates how economic conditions will evolve.
“If you saw a stop light ahead, you would begin letting up on the gas to slow down smoothly,” she said. “You do not want to have to slam on the brakes at the last second. Monetary policy must also anticipate the road ahead.”
It is the clearest sign yet of a clear bias towards tightening monetary policy. The bank’s key overnight interest rate has been fixed at 0.5 per cent since July 2015, when it made the second of two quarter-point cuts to deal with the aftershocks of the oil price collapse. The Bank of Canada has not raised rates in nearly seven years.
Nonetheless, most economists who follow the central bank don’t expect an interest rate hike until sometime next year.
As evidence of the economy’s “broadening” strength, Ms. Wilkins pointed to the resumption in business investment, largely driven by a bounce-back in spending in the oil patch.
She also said that consumer demand has picked up in the energy-producing provinces, leading to a broadening of economic strength and job creation across the country. A chart accompanying Ms. Wilkins’ speech shows that employment is up in eight out of 10 provinces since last October. New Brunswick and Newfoundland-and-Labrador have continued to lose jobs.
Growth is also spreading across sectors and industries, Ms. Wilkins said. More than 70 per cent of industries are now expanding output. She highlighted computer systems and design, which has grown at a rate of 10 per cent in the past year – a sector that is now as large as vehicle production and aerospace combined.
“What is encouraging is that this growth is not being driven by just a few key industries,” she said.
But the economic news is not all good. Ms. Wilkins pointed to a number of risks that could cause the economy to stall, including another fall in the price of oil, sluggish exports and the ongoing uncertainty over what U.S. President Trump will do on taxes and trade.
“We are all acutely aware of the uncertainty around the policies of the U.S. administration – whether it is about trade, tax or the regulatory environment,” she said. “Until we get more information, it will be difficult to gauge the impact of any proposed policy changes more precisely. This will remain an important uncertainty in our projection, but life goes on and decisions must be made in the meantime.”
BARRIE MCKENNA
The Globe and Mail
Published Monday, Jun. 12, 2017 1:36PM EDT
A senior Bank of Canada official says economic growth has spread to most regions and industries – the latest clue that the central bank is pondering when to start hiking interest rates.
The bank is seeing “some signs that growth is broadening across regions and sectors,” senior deputy governor Carolyn Wilkins told a business audience Monday in Winnipeg.
“We are seeing the economy pick up,” insisted Ms. Wilkins, Governor Stephen Poloz’s No. 2 executive at the bank.
The Canadian dollar jumped more that half a cent to 74 cents (U.S.) immediately after Ms. Wilkins’s remarks were posted on the bank’s web site.
The improving outlook has prompted the Bank of Canada to start looking ahead to its first rate hike in nearly seven years.
Ms. Wilkins said the central bank will be “assessing” whether to keep pumping low interest fuel into the economy as “growth continues and, ideally broadens further.”
The economy surged ahead at an annual pace of 3.7 per cent in the first quarter.
Bank officials seem relatively unconcerned that inflation has drifted lower in recent months and now sits well below the bank’s two per cent target.
Ms. Wilkins hinted that the bank may have to act preemptively as it anticipates how economic conditions will evolve.
“If you saw a stop light ahead, you would begin letting up on the gas to slow down smoothly,” she said. “You do not want to have to slam on the brakes at the last second. Monetary policy must also anticipate the road ahead.”
It is the clearest sign yet of a clear bias towards tightening monetary policy. The bank’s key overnight interest rate has been fixed at 0.5 per cent since July 2015, when it made the second of two quarter-point cuts to deal with the aftershocks of the oil price collapse. The Bank of Canada has not raised rates in nearly seven years.
Nonetheless, most economists who follow the central bank don’t expect an interest rate hike until sometime next year.
As evidence of the economy’s “broadening” strength, Ms. Wilkins pointed to the resumption in business investment, largely driven by a bounce-back in spending in the oil patch.
She also said that consumer demand has picked up in the energy-producing provinces, leading to a broadening of economic strength and job creation across the country. A chart accompanying Ms. Wilkins’ speech shows that employment is up in eight out of 10 provinces since last October. New Brunswick and Newfoundland-and-Labrador have continued to lose jobs.
Growth is also spreading across sectors and industries, Ms. Wilkins said. More than 70 per cent of industries are now expanding output. She highlighted computer systems and design, which has grown at a rate of 10 per cent in the past year – a sector that is now as large as vehicle production and aerospace combined.
“What is encouraging is that this growth is not being driven by just a few key industries,” she said.
But the economic news is not all good. Ms. Wilkins pointed to a number of risks that could cause the economy to stall, including another fall in the price of oil, sluggish exports and the ongoing uncertainty over what U.S. President Trump will do on taxes and trade.
“We are all acutely aware of the uncertainty around the policies of the U.S. administration – whether it is about trade, tax or the regulatory environment,” she said. “Until we get more information, it will be difficult to gauge the impact of any proposed policy changes more precisely. This will remain an important uncertainty in our projection, but life goes on and decisions must be made in the meantime.”
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