Poloz reiterates bright outlook as Bank of Canada holds key rate

BY BARRIE MCKENNAThe Globe and Mail

OTTAWA — Bank of Canada Governor Stephen Poloz says there’s a brighter future ahead if people can look beyond an economy that’s teetering on the brink of outright contraction.

The central bank kept its key overnight lending rate unchanged Wednesday at 0.75 per cent, even as it released a new forecast showing Canada’s oil-dependent economy stalled and likely didn’t grow at all in the first three months of the year.

The no-growth forecast is a sharp downgrade from the 1.5-per-cent annual growth rate the bank predicted just three months ago, when Mr. Poloz rattled financial markets with a surprise quarter-percentage-point rate cut.

But Mr. Poloz insisted the economy would snap back in the second half of the year as the shock of the oil price collapse fades – optimism that suggests more interest rate relief likely won’t be needed.

“By the middle of the year we should be seeing only the good stuff,” Mr. Poloz told reporters in Ottawa.

The Canadian dollar rebounded, gaining 1.2 cents to 81.30 cents (U.S.), as investors bet that Mr. Poloz’s upbeat tone makes another rate cut this year less likely.

Some analysts aren’t convinced Mr. Poloz is right. He got the first quarter wrong and now he’s overoptimistic about what the rest of the year will bring, said Ben Homsy, a fixed-income analyst at Leith Wheeler Investment Counsel in Vancouver.

“The impact from low oil prices on the Canadian economy is not a one-quarter event,” Mr. Homsy said. “We’ll see that reverberate through the second and third quarters.”

He pointed out that dismal factory sales, which fell for a second consecutive month in February, suggest the lower Canadian dollar isn’t yet helping non-energy exporters.

Read more » The Globe and Mail
See more » http://www.theglobeandmail.com/report-on-business/economy/bank-of-canada-cuts-outlook/article23965431/

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