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‘Companies are reluctant to invest’ as questions swirl around NAFTA, pipelines: Poloz

NAFTA uncertainty making companies ‘reluctant to invest’ in Canada: Stephen Poloz
WATCH: Bank of Canada head Stephen Poloz speaks about the balancing act of when to raise and lower interest rates in Canada.

Bank of Canada Governor Stephen Poloz says hesitation around new investment in Canada is keeping him up at night.

“I worry more about what companies are telling me,” Poloz told Global News’ Eric Sorensen in a sit-down interview on Wednesday, just hours after the bank announced that it will uphold a 1.25 per cent interest rate as inflation in Canada continues at 2 per cent.

“Companies are reluctant to invest,” Poloz said.

In Wednesday’s press conference, he explained that investment appetite is high, but less positive as investors are unsure about timing.

WATCH: Bank of Canada expects modest rise to inflation, will ‘ease’ in 2019

Bank of Canada expects modest rise to inflation, will ‘ease’ in 2019
Bank of Canada expects modest rise to inflation, will ‘ease’ in 2019

The main reasons companies are keeping their profits in their pockets are NAFTA and pipelines.

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READ MORE: Bank of Canada keeps interest rate at 1.25% but likely to hike later this year

NAFTA remains a very big preoccupation for potential investors and pipelines continue to be a big preoccupation within the energy sector, he noted.

“What we take from all that, as an economist, that means companies are reluctant to invest, whether they are in the oil sector or other sectors if they depend on trade.”

Even those who are investing would invest a lot more if the uncertainty was negated, Poloz explained.

NAFTA negotiations are expected to continue in Washington on Thursday with the hope that an agreement will be reached prior to the campaigning period for the presidential election in Mexico on July 1.

Higher interest rates coming

Poloz also spoke with Sorensen about what the release of Wednesday’s Monetary Policy Report means for the future of Canadian interest rates, and the future of Canadian youth looking to invest.

He said that he believes it is very likely that higher interest rates will be warranted over time, given where the economy is right now and given that the economy is 50 per cent more sensitive to interest rates today.

READ MORE: Where, exactly, rising interest rates may leave Canadians in danger of losing their homes

Another area of concern for Poloz is the ability millennials currently have to invest in today’s housing market.

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For Canadian youth, it is a more fluid system, according to Poloz. But that isn’t to say he isn’t still optimistic about their future.

“It’s funny, it’s all about your perspective,” he noted.

Young people today are facing high housing prices with low incomes, a situation Poloz says is very similar to his own experience as a young man. He explained that when he was looking to invest in a first home, prices were still high relative to his income and purchasing property still seemed unobtainable.

“Much of that is all still true, so I think it’s a matter [of] the financial system. We have a much more efficient, more fluid financial system than we had 35 years ago. So I think it will work out.”