TROIS-RIVIERES, Quebec, Oct. 6 Inflation risks
in Canada remain tilted to the downside as the economy takes
time to adjust to the oil price shock and awaits a boost from
fiscal stimulus and the U.S. economic recovery, a senior Bank of
Canada official said on Thursday.
Pointing to material slack in the economy and continued
uncertainty among businesses that has hampered investment,
Senior Deputy Governor Carolyn Wilkins said there had been
progress in the nation's economic adjustment, but also some
"The Bank is providing monetary stimulus in order to meet
its inflation target. The adjustments are clearly under way. But
it will take time before the economy has fully adjusted to the
oil price shock, the U.S. economy strengthens and the effects of
fiscal stimulus take hold," she said in a speech to the
University of Quebec in Trois-Rivieres.
Signaling the central bank was in no hurry to raise interest
rates, Wilkins said global events, such as Britain's vote to
exit the European Union, have undermined confidence and there
continues to be more slack in the labor market than the overall
unemployment rate would suggest.
She said that while an uptick in non-commodity exports in
July and August was encouraging, uncertainty lingered due to
questions about U.S. business investment growth. The effect of
lower oil prices on the U.S. economy may have been less positive
than anticipated, she said.
Wilkins said business investment is expected to subtract
another percentage point from economic growth this year after
subtracting 1.5 percentage points last year, with competition
effects from exchange rates playing a role.
She noted that Mexico's currency has depreciated more than
the Canadian dollar, but said recent weakening in Canada's
currency is expected to support exports, "even though its
influence on their growth rate has faded for the most part."
On the upside, Wilkins expects U.S. activity to recover over
the next few quarters, as household spending and the labour
market remain robust.
She said the effects of the Liberal government's fiscal
stimulus in the way of tax cuts and infrastructure spending will
become more prominent as the year progresses.
While the central bank continues to worry about financial
vulnerabilities that come with Canada's record high level of
household debt, Wilkins said the mortgage rule changes unveiled
by the government on Monday will, over time, help mitigate risks
to the financial system.
(Additional reporting by Leah Schnurr and Andrea Hopkins;
Editing by Bernadette Baum)