Bank of Canada Governor Stephen Poloz is more hopeful than before about an export recovery but is not straying from his mantra that an interest rate cut is just as possible as a hike because the economic outlook is so uncertain.
"We're expressing true neutrality on that question," Poloz told reporters after a speech on Thursday when asked if the bank's next move would be an increase or a decrease in its main overnight target rate.
Poloz said he is more confident of exports and business investment strengthening after gaining a better understanding of how non-energy exports are performing relative to foreign demand from a new central bank study published on Thursday.
But if the more upbeat scenario does not materialize and exports do worse than expected, overall inflation will fall again and drift further from the bank's 2% target, he warned.
"The bank's analysis has given us a more granular interpretation of the export picture - and gives us more hope for the recovery of our non-energy export sector," Poloz said in a speech at a trade and export industry luncheon in Saskatoon.
Poloz had previously confessed to being puzzled by Canada's lagging exports and said a recovery of the sector was a prerequisite for full economic comeback.
The study of 31 sectors shows that while some industries had not rebounded in line with foreign demand, about 55 percent of non-energy exports have either been performing as expected or outperforming their foreign demand benchmark.
These industries - which include machinery and equipment, building materials, pharmaceuticals, metal products and tourism - should lead the export recovery.
The analysis also found that the recent depreciation of the Canadian dollar would help some industries, but that the majority of those sectors that have been doing well are less likely to benefit from the lower currency.
Poloz said the analysis "feeds critically into our policy decision making."
The Bank of Canada held its main interest rate at 1.0% last week. Economists in a Reuters poll predicted it would stay on the sidelines until the third quarter of 2015, when it is expected to raise rates by 25 basis points.
Poloz said Canadians should expect rates to be lower than in the past, even when they return to what is considered a "normal" level.
