stephen s poloz : opening statement before the house of commons standing committee on finance opening statement by mr stephen s poloz, governor of the bank of canada, before the house of commons standing committee on finance, ottawa, ontario, 30 october 2018. * * * good afternoon, mr. chairman and committee members. senior deputy governor wilkins and i are pleased to be with you today to discuss the bank ’ s monetary policy report. at the time of our last appearance in april, our message was about the considerable economic progress that we had seen. we explained that after a lacklustre start to 2018, growth would rebound in the second quarter, coming in at around a 2 per cent pace for the rest of the year. we also said inflation would stay somewhat above our 2 per cent target this year, boosted by temporary factors whose impact would unwind over time, returning inflation to target in 2019. six months later, we have seen some very positive developments. the canadian economy has solid momentum and continues to operate near its capacity. growth is relatively broad - based across sectors and regions and it is more balanced, as the composition of demand shifts toward business investment and exports and away from consumption and housing. the economy will grow at a rate slightly above its potential over the projection horizon, supported by both foreign and domestic demand and favourable financial conditions. meanwhile, inflation is close to target after running a little higher than we expected in july and august due in large part to changes in the way statistics canada measures airfares. while there could be further volatility in inflation in coming months, our core measures remain firmly around 2 per cent. of course, the outlook remains subject to important risks and uncertainties. let me highlight two issues : trade and household indebtedness. in april we said the most significant risk to our inflation outlook was the prospect of a large shift toward protectionist trade policies around the globe. we also reminded members that our forecast included the negative effect of increased uncertainty on the export and investment plans of companies. naturally, we spent a considerable amount of time ahead of last week ’ s interest rate decision discussing the implications of the recent us – mexico – canada trade agreement ( usmca ). the usmca is good news because it will reduce a considerable source of uncertainty that has been holding back business investment. we know from our latest business survey, completed before the agreement was reached, that investment plans were already quite positive, as firms looked to take advantage of a strong us

in a number of respects is positive. let me conclude by pointing out that, even with last week ’ s increase in the policy rate to 1. 75 per cent, monetary policy remains stimulative. in fact, the policy rate today is still negative in real terms, that is, once you adjust for inflation. our estimate of neutral is in a range — currently 2 ½ to 3 ½ per cent. the policy rate will need to rise to neutral to achieve our inflation target. that said, the appropriate pace of increases will depend on our assessment at each fixed announcement date of how the outlook for inflation and related risks are evolving. in particular, we will continue to take into account how the economy is adjusting to higher interest rates, given the elevated level of household debt, and whether strong consumer confidence builds on solid job and income growth and leads to greater - than - expected consumption. we will also pay close attention to global trade policy developments and their implications for the inflation outlook. again, this risk is two - sided. with that, mr. chairman, senior deputy governor wilkins and i would be happy to answer questions. 2 / 2 bis central bankers'speeches