In the face of downside risks to economic growth and upside risks to

inflation , the Bank of Canada is more likely to do very little in terms of rate moves, according to former Bank of Canada governor

Stephen Poloz . “In that context a central bank should be thinking, ‘I need to cut rates to cushion the blow, but I need to raise rates to prevent inflation from going up much,’” said Poloz, now special adviser to the law firm Osler, Hoskin Harcourt LLP, during a webinar on Wednesday. “They’re more likely to do very little and that’s what we’re seeing.”

Poloz said this is referred to as risk management mode, where incoming data is assessed based on whether the risks associated with weak growth and a rising jobless rate, outweigh the potential for higher inflation.

The trade war with the United States has been a source of uncertainty for businesses and investment in Canada, which Poloz said has created a “tricky environment” for the Canadian economy.

“(It) is a stagflation shock, we don’t know how deep of a stagflation it will be, but it could be more stag than inflation,” said Poloz.

The Bank of Canada cut its policy rate by 25 basis points in October, bringing the rate down to 2.25 per cent, the lower end of the bank’s estimated neutral range. Bank of Canada governor

Tiff Macklem signalled that may be the end of its easing cycle, if the economy operates in line with its forecasts, and noted that inflationary pressures had been “contained.” Expectations currently lean towards a pause at the central bank’s next rate decision in December.

Canada’s unemployment rate declined in October but remains elevated at 6.9 per cent. After contracting in the second quarter, the Canadian economy is expected to grow by 0.5 per cent in the third quarter, according to the Bank of Canada’s forecast.

Poloz said monetary policy cannot unwind all the impacts of a trade war, including sectors that that are hard-hit by

U.S. tariffs . When asked about Canada’s traditional economy and the future of the auto sector, Poloz said there are risks to the longevity of some of that industry.

“I’m more confident about the parts sector being present 10 years from now, than about the final stage — the assembly sector,” he said.

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