'No predetermined path for interest rates from here,' Stephen Poloz says

The Bank of Canada will pay close attention to economic data to determine its interest rate policy moving forward, and won't be sticking to any sort of script, the bank's governor Stephen Poloz says.

Rate cuts in 2015 saved 120,000 jobs, Bank of Canada governor tells audience

The Bank of Canada, led by governor Stephen Poloz, has hiked its benchmark interest rate twice this year. (David Kawai/Bloomberg)

The Bank of Canada will pay close attention to economic data to determine its future interest rate policy, and won't be sticking to any sort of script, the bank's governor Stephen Poloz said in a speech Wednesday.

In July, the bank moved its benchmark interest rate up by a quarter of a percentage point, the first time it has hiked lending rates since 2010. It followed that up with another rate hike earlier this month, causing many watchers to wonder if more increases were in the offing.

But the bank won't stick to a script in terms of setting its policies and will respond to developments as they happen.

"There is no predetermined path for interest rates from here," Poloz said in a speech in St. John's.

"Monetary policy will be particularly data dependent in these circumstances and, as always, we could still be surprised in either direction."

The speech focused on how important data is in setting the bank's policy directions. Poloz said the bank's decisions have become "particularly" data dependent since the advent of protectionist sentiments in some parts of the world and other geopolitical developments.

Market watchers currently think there's about a one-in-three chance of another rate hike next month, Bloomberg data indicate. But Poloz's first public comments since July seem designed to spread the message that the bank won't stick to any predetermined path and will instead react to information as it comes in.

The loonie lost about half a cent to drop as low as 80.45 cents US on Wednesday after the text of Poloz's speech came out. That's a sign that currency traders think more hikes are less likely.

"I would interpret the broad tone of … Poloz's comments as indicating they will skip a hike at the October meeting in favour of a December hike call," Scotiabank economist Derek Holt said.

Just as expected

In 2015, the bank shocked many by cutting its benchmark interest rate in reaction to the collapse in oil prices. The bank's models correctly predicted that move would assist the economy, even if it took a while.

Although criticized by some at the time, Poloz said the move to cut rates to all-time lows helped the economy just as it was expected to.

"We estimate that if we had not lowered our policy rate in 2015, the economy would be roughly two per cent smaller today — a difference of almost $50 billion — and there would be about 120,000 fewer jobs."

Poloz said interest rate changes don't tend to leave their full imprint on inflation for about 1½ to two years, a trend he expects to continue this time around after two rate hikes.

"When we make our monetary policy decisions, we are less concerned about the latest inflation numbers — which are already a month old — than we are about where inflation will be in the future," Poloz said.

TD Bank economist Brian DePratto interpreted the speech as a sign the bank would be in no rush to raise rates. "The rate hikes of July and September were discussed in the context of the 2015-2016 oil shock, the impacts of which are seen as largely in the past," DePratto said. "Markets appeared to share this interpretation."

The central bank's next scheduled policy meeting to decide on interest rates is set for Oct. 25.