WELCOME CHOICE:
‘Outsider’ Poloz praised,
Once they recovered from the surprise, business leaders and economists had kind words, and some gentle advice, for new Bank of Canada governor Stephen Poloz.
The chief debate as news of his appointment spread was whether Poloz should be termed an “outsider” at the Bank of Canada, given his lengthy service at the bank prior to taking over Export Development Canada.
The expected choice had been the bank’s deputy governor, Tiff Macklem.
“I’m a little surprised, and pleasantly surprised,” said Jayson Myers, chief executive of Canadian Manufacturers and Exporters.
Myers said it was important to choose someone who was more than an economic theorist. “He is an excellent communicator, and I think that’s a very large part of the job,” Myers said. “He’s a good economist and that’s important, but the main job here is to maintain confidence among the investor community. Communication is a huge part of that.” That means listening as well, he said. “Economic theory is nothing without grounding in the reality of business and the reality of finance. It’s extremely important for Steve to continue to consult with businesses.”
Poloz’s background at the Export Development Canada will also be crucial in the international arena, where there’s a danger of trade being stifled by a lack of credit, Myers said.
“The whole nature of regulation and credit internationally and what is the Bank of Canada’s role, what’s the appropriate monetary policy direction given tightening around the world, these are all really crucial problems.” CAW economist Jim Stanford praised the idea of hiring an outsider for the top job, noting this was the third time that the deputy governor has been passed over.
“There is something to be said for hiring an outsider,” he said. “In this era, monetary policy needs some out-of-the-box thinking.”
Stanford credited Carney with unconventional thinking including announcing that interest rates would stay low. “Hopefully, Mr. Poloz brings the same willingness to innovate to the job, because we need it.”
Stanford, too, pointed to Poloz’s trade international credentials.
Poloz is well aware of the impact of the high Canadian dollar on exports, Stanford said.
“Hopefully, as central bank governor, he will be sensitive to the problem of the dollar for the export side of our economy,” he said, noting that during 2008-09, EDC played a critical role in the bailout for the auto industry, which Stanford called “out-of-the-box thinking.” Some observers were astonished. “It’s a huge surprise,” said Walid Hejazi, a professor of international business at the Rotman School of Management. “They didn’t pick the front-runner, Tiff Macklem, who is well regarded, who was close to Mark Carney,” he said. “They picked some- one from inside government. “My prediction is that (Poloz) will take the bank in the same direction that Mark Carney was taking it, but it seems to me, then why not pick someone inside the bank like Tiff?” Armine Yalnizyan, economist with the Canadian Centre for Policy Alternatives, said it’s important for the bank to think of issues beyond price stability. “The fear is that, in an attempt to stick to a very doctrinaire mandate on inflation control, that they will jump the gun and raise interest rates too quickly,” she said. “Reacting too quickly to inflationary fears is the big temptation right now.” Scotiabank economists in a research note said markets could take the appointment of Poloz as a sign Ottawa is focusing on the challenges facing exporters, including an elevated currency. But Scotia Capital economics vice-president Derek Holt cautioned that Poloz’s monetary policy views are not yet well known. “It is possible that markets will initially treat his appointment as mildly dovish for rates and bearish for (the Canadian dollar),” but Poloz is in some ways an unknown quantity, Holt said.
Observers had different takes on whether Poloz really is an outsider.
While the Canadian dollar weakened slightly after news of the appointment, Craig Alexander, chief economist at the TD Bank Financial Group, said any roiling in currency and bond markets will likely dissipate after traders learn more about the new governor.
Craig Wright, RBC Financial Group chief economist, said Poloz is not technically an outsider, since his background includes 14 years in senior roles at the Bank of Canada.
He added that there is no indication Poloz will change Canada’s monetary policy, which has kept lending rates at a record low amid sluggish GDP growth.
But C.D. Howe Institute research vice-president Finn Poschmann said Poloz’s background as head of Export Development Canada could signal a shift in the central bank’s focus from monetary policy alone to encompass broader issues.
He added that the governor’s familiarity with export roadblocks may hint at the government’s concern about the impact of a strong loonie on commodity exports.