(Corrects headline and first paragraph. The Bank of Canada saidPoloz was referring to the change in the Canadian dollar, not inmonetary policy when he spoke of "not a very significantchange.")
By Louise Egan
OTTAWA, Oct 29 (Reuters) - The Canadian dollar did notweaken significantly after the Bank of Canada abandoned 18months of warning about higher interest rates last week inresponse to low inflation and a weak economy, central bank headStephen Poloz said on Tuesday.
Poloz told a parliamentary committee that in settinginterest rates last week the bank heightened its focus on thefact that inflation has been persistently below its 2 percenttarget.
"In that context we decided that we should no longer have anexplicit bias toward higher interest rates," he said. "In thatcontext it's true that markets have digested that and have soldthe Canadian dollar a little, but it's not a very significantchange."
Canada's central bank was the first to tighten monetarypolicy following the 2008-09 global financial crisis, raisingits key overnight rate three times in mid-2010 and holding therate at 1.0 percent since then.
The central bank held the rate unchanged last week, butsurprised markets by signaling its next move could just as wellbe a rate cut as a hike, effectively ending the mildly hawkishstance it had held since April 2012 and nudging the Canadiandollar to a one-week low.
Poloz said he saw little risk of the bank overshooting itsinflation target due to easy monetary policy. Canadian consumerprices rose 1.1 percent in September and the bank only expectsinflation to climb back to 2 percent by the end of 2015.
Canada's primary securities dealers surveyed by Reutersafter the bank's rate decision forecast the bank would not raiserates until the second quarter of 2015, six months later thanthey predicted previously.
PATCHY U.S. RECOVERY
The Bank of Canada has repeatedly expressed disappointmentthat exports - a central plank of the Canadian economy - havenot bounced back as quickly as the bank's models had predicted.
Senior Deputy Governor Tiff Macklem blamed the delayedrecovery on an atypical U.S. recovery and the loss of companiesin the recession, with a stronger Canadian dollar compoundingthe problems.
"The biggest reason exports have been weak is that the U.S.economy, our major export market, has had the deepest recessionand the slowest recovery since the Great Depression. So that byitself sets a weak track for an export recovery," said Macklem,who appeared before lawmakers alongside Poloz.
Macklem said the strength of the Canadian dollar versus theU.S. dollar is only part of the reason for the lagging exports.
"There are competitiveness factors, the (Canadian) dollar ispart of that. We estimate it's about two-thirds of that andone-third is the weak productivity performance we've had overthe last decade," he said.
Poloz emphasized that many exporting companies simplyvanished in the 2008-09 recession. Now, he said, that trend isstarting to reverse itself.
"The good news is we've seen a sudden increase in thepopulation of companies in 2013, which is very encouraging,"Poloz said. "It's the first evidence that we've seen since 2008of what I would call natural growth, which is the growth processthat is self-generating, self-sustaining." (Reporting by Louise Egan; Editing by Peter Galloway and JanetGuttsman)
- Bank of Canada
- monetary policy
- Stephen Poloz