Fin - Balance Sheet - CA

Poloz expected to stick to the script for first BoC statement

Brenda Bouw
Balance Sheet

Stephen Poloz steps up to the plate this week with his first policy statement as governor of the Bank of Canada, but don’t expect any bold moves like those his predecessor made during his first week on the job in London.

Economists have a few suggestions for Poloz on how to approach his first interest rate announcement and monetary policy report on Wednesday, but most predict he'll stick to the script left behind by Mark Carney, now governor of the Bank of England.

“Based on both his parliamentary testimony and his first public speech as Governor, it is unlikely that he will deviate too far from the status quo,” David Tulk, TD Bank’s chief Canada macro strategist, said in a note.

Poloz is expected to leave interest rates at 1 per cent – where they’ve sat since September 2010 - given that Canada’s inflation rate remains at a worrisome 1.1 per cent, below the bank's target of 2 per cent.

“Nobody would be hawkish enough to propose raising rates, or verbally move up the timetable for a hike, with inflation so far below the target and the jobless rate at a standstill,” CIBC chief economist Avery Shenfeld said in a note.

At the last policy announcement in May, the soon-to-depart Carney reiterated tighter monetary policy – by which he meant higher interest rates - would be needed after “a period of time," without providing any more specifics.

Poloz has a good case to remove that rate-hike warning altogether, economists say, particularly if the former Export Development Canada boss wants to drive the dollar lower to help improve the fortunes of the business types he last represented.

But will he do it? Economists say it's unlikely.

“Governor Poloz will be reluctant to do so at his very first opportunity, not wanting to look less concerned than his predecessor over the issue of high household debt," said Shenfeld.

Poloz could rejig the wording to suggest rates will “one day be higher,” without making assurances, Shenfeld says. “But even that wording change is likely to be too ground-shifting for a first meeting as governor.”

BMO economist Benjamin Reitzes said removing the bias would put Poloz's "inflation-targeting credentials, which he is in the very early stages of building, at risk. In fact, dropping the bias for any reason at all would likely drive speculation that he has a dovish bent."

Reitzes agrees with his peers that Poloz will do little to change to the bank's policy stance. That said, he isn't ruling out the unexpected.

"Poloz hasn’t given any direction on his thoughts on monetary policy, so a surprise could be in the cards," he says.

One thing to count on: Wednesday's rate announcement will be one of the most closely watched and analyzed since Carney was in the same position five years earlier.

View Comments