Bank of Canada says business confidence crucial, urges patience

By Euan Rocha and Peter Henderson

BURLINGTON, Ontario (Reuters) - The Bank of Canada is relying on a rebound in businesses confidence to drive the economy's return to health, the central bank's new chief, Stephen Poloz, said on Wednesday in a speech that revealed no clear leanings on monetary policy.

In his first speech after taking over as governor on June 3, Poloz said there were signs that business confidence is improving as export demand builds and he said what Canada needs now is "stability and patience".

"As our economy continues to expand, it will be the performance of the business sector here and across Canada over the coming while that we will be watching with great interest," Poloz told a business audience in Burlington, Ontario, in the country's manufacturing heartland.

"We need business confidence to continue to heal. This matters very much to the Bank of Canada. Our understanding of these issues will be part of the rigorous distillation of information that drives our policy decisions," he said.

Poloz's speech will vie with the U.S. Federal Reserve's policy announcement for market attention on Wednesday, and Poloz's news conference overlaps one being held by Fed Chairman Ben Bernanke.

Canada's economy has long recovered from the 2008-09 recession but growth has largely been driven by household spending, with exports and business investment lagging.

In the speech, Poloz played up his ties with the business world as former head of the country's export credit agency, stressing the need to supplement the central bank's analysis with direct insights from industry. Companies have healthy balance sheets and the capacity to invest, he said.

His predecessor, Mark Carney, got into hot water with business leaders for chiding them for sitting on what he called "dead money" instead of investing.

Business investment has been slower to rebound this time than after previous recessions and it slowed in the second half of 2012. In April, the central bank forecast a subdued pickup in business investment growth in 2013.

Poloz did not repeat any of the language used by the bank in its May 29 interest rate decision, which signaled a likely modest withdrawal of monetary stimulus after a period of time.

On the issue of soaring household debt, a top concern for Carney, Poloz said he was confident Canadians were heeding the bank's message that "interest rates will rise at some point" and would manage their debt accordingly.

As for the heated housing market, Poloz noted "a construction evolution of activity" in housing while acknowledging choppy data recently, which some believe suggests renewed strength.

The Bank of Canada is an outlier among the Group of Seven industrialized nations for being the first to hike rates, in mid-2010, after the global recession. It lifted its overnight target rate to 1 percent at that time.

It resumed rate-hike talk in April 2012, signaling in all 10 rate decisions since then that the next move will be up, not down, although it has made clear it is in no rush given the disappointing economic backdrop.

A Reuters poll on May 23 showed most economists don't expect the bank to raise rates until the fourth quarter of 2014.

(Writing by Louise Egan and Randall Palmer; Editing by Peter Galloway)

Source: http://news.yahoo.com/bank-canada-says-business-confidence-crucial-urges-patience-170356223.html

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