TORONTO, April 12 Below are some key quotes from
an appearance on Wednesday by Bank of Canada Governor Stephen
Poloz in Ottawa following the central bank's decision to hold
benchmark interest rates unchanged:
POLOZ ON POLICY OUTLOOK, RECENT DATA:
"Given the circumstances we see, we're decidedly neutral. We
believe the interest rate is at the appropriate level given what
we see and as well things that we don't see, which are the risks
that are weighing on decision-making in the Canadian corporate
sector, which come from possible trade policy changes south of
"Since we sat here three months ago, the data have not been
uniformly positive, but they've been much more positive than
they have been on balance for the last, I don't know, year,
POLOZ ON HOUSEHOLD INDEBTEDNESS, HOUSING DEMAND:
"The truly independent instrument of financial stability is
macro-prudential changes in the system, which the government put
into place not that long ago. On that front I think we can be
very confident that the quality of indebtedness is steadily
strengthening, because people have to qualify a higher rate,
that is in what we call the insured space, the foreign insured
mortgages, which is the part where the rules apply."
"There's no question that having had low interest rates for
some time that has been one of the things contributing to more
demand for housing. That's why we've had low interest rates, to
boost the economy and that's one of the main channels. But an
interest rate of either 3 or 4 percent for a mortgage is not
going to change someone's mind if they've made they are basing
their decision on the assumption that the price of the house is
going to rise by another 20 percent next year. Interest rates
are not what is fuelling that speculation, it does add to demand
at the bottom, of course."
"Just to complete that thought I would just note that
consumer credit is only growing in Canada by around 5 percent
per year, mortgage credit by about 6 percent. And so there is no
credit boom to go with that speculative phase and so it's in
that sense there are checks and balances lying around."
POLOZ ON DEMAND FOR HOUSING IN TORONTO:
"Demand for housing is strong in the greater Toronto area.
That's very fundamental. Employment growth has been strong,
immigration growth has been strong, so there is obvious demand
for housing. In that context, supply, although it has been
growing, it has not been growing as fast as demand. So there'd
be fundamental upward pressure on prices. We have known that for
some time, so that hasn't changed. What has happened in the last
year is that things have accelerated from that high teens to the
30 percent zone for price increases. Well, there is no
fundamental story that we could tell to justify that kind of
inflation rate in housing prices, and so it is that gap between
what fundamentals could manage to explain and what is actually
happening, which suggests that there is a growing role for
speculation in that. In other words, demand is being driven more
by speculative demand or investor demand as opposed to just
folks that are buying a house."
POLOZ ON WHAT IMPACT TORONTO COULD HAVE ON HOUSING MARKET:
"If there was a sizeable correction in a market like Toronto
- Toronto is a really big weight in Canada - so that can affect
people's expectations in other markets. So in the sense it could
be, it has potential to be contagious but I wouldn't predict it
to be contagious, it just could be.
"What would make that more likely would be if the context
were, the trigger were a slowing economy, if the economy were
slowing down. Like the sort of thing we imagine in the FSR, what
would cause a financial stability risk to become manifest? If
there were a generalized increase in unemployment across the
country because of, say, a global slowdown, then you would have
the potential for a correction in that market and then it would
be more likely to be contagious because everybody is
experiencing the same trigger."
POLOZ: IT'S TIME TO REMIND FOLKS PRICES OF HOUSES CAN GO
DOWN AS WELL AS UP:
"As we've observed more than a year ago in the case of
Vancouver, where we had similar kind of data points, when there
is that large of a gap between what fundamentals might say and
what you actually observe, then there is very unlikely to be a
sustainable rate of price increase and I think it is timely to
remind folks that prices of houses can go down as well as up."
POLOZ ON HOME PRICES BEING 'DIVORCED' FROM FUNDAMENTALS:
"Any price that is rising at a rate of 30 percent or more
has divorced itself from any fundamentals that we can identify.
It puts it into what I would call an unsustainable zone."
POLOZ ON POSSIBILITY OF HOUSING CORRECTION:
"It is a question of risk management. What would you do if
there was a correction. When something has been rising that
quickly, of course it is vulnerable to a correction. But how big
that could be, your guess is as good is mine."
"But I have to admit that in history there are lots of
occasions when something looked unsustainable and it was
unsustainable longer than you might have imagined. So there are
no hard predictions around that."
POLOZ ON WHETHER A RATE CUT REMAINS AN OPTION:
"A rate cut, or further easing in policy, remains possible
in the sense that there may be risks that are realized in the
outlook, that pull us below the projection that we are offering
"When we talked about that a few months ago we had seen a
series of disappointing data points that led us to believe that
the risks were beginning to tilt towards to the downside and the
uncertainties that we were dealing with were similarly
"And so it's in that context that we discussed the
possibility of easing. But in this context, given the data that
we've seen in the last few months, I can quite clearly say no, a
rate cut was not on the table at this time."
(Reporting by Fergal Smith, Alastair Sharp; Assembled by Dan