Bank of Canada: Poloz Determined to Keep Interest Rates Low

The Governor of the Bank of Canada, Stephen Poloz, told a business audience at the Canadian Club in Montreal on December 12 that it is imperative to keep interest rates at their current historical low in order to stave off the threat of deflation.

Poloz stated that it might take a few years to return to the 2% per annum inflationary rate, which he described as "sacrosanct."

"Our current monetary policy weighs this risk against the risk of inflation falling even further below target," he said. "This zone of balance is relevant today and in prospect, as we expect both risks to diminish over the next two years or so."

From the tenor of his speech, Poloz sounded as though he was prepared to cut rates immediately, if not for a large apprehension regarding the housing market and rising household debts.  

"History has taught us that deflation usually comes in the wake of a financial crisis," he said. "Expectations become unanchored on the downside, and people put off their purchases because they expect things to be less expensive later. Demand declines with prices, while the weight of debt on the economy grows."

Although uncertainties remain, Poloz believes that the policies in place will guide the Canadian economy to a stable position and that the economy will continue to grow in the near future. In the last monetary policy review done by the Bank it was projected that Canada's economy will grow by 2.3 per cent this year and 2.6 per cent in 2015. It was also anticipated that inflation would return to the two-per-cent target by late 2015.