Bank of Canada in uncharted territory, says new chief Poloz

Wed Jun 19, 2013 2:42pm EDT
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By Euan Rocha and Peter Henderson

BURLINGTON, Ontario (Reuters) - The Bank of Canada cannot rely on its usual models to assess the economy because of unexpectedly high levels of uncertainty, with the biggest risks coming from abroad, the new central bank chief, Stephen Poloz, said on Wednesday.

Answering audience questions after his inaugural speech, Poloz said the central bank was in "uncharted territory" and called for direct feedback from those doing business on the ground in order to better understand what is happening.

"The models that we use are not really equipped to deal with the situation that we find ourselves in," he said.

"The biggest risk that we face today, I suppose, is still an external one, which is that the world may not recover with the same kind of vigor that, at the moment, we're hoping for and actually seeing signs of."

He said problems in Europe could take a long time to play out but he was upbeat about Japan's "monetary experiment" and about the U.S. recovery.

"So right now, we're thinking 'Yeah, the glass is half full and off we go.' But that doesn't mean we couldn't have a surprise, like we've had before."

Poloz, who took over as central bank governor on June 3, was careful not to reveal any particular bias on monetary policy, saying the bank only signals its intentions at pre-scheduled announcement dates. The next one is July 17.

"Our broad takeaway is that this speech further reinforces our prolonged (rate) pause forecast into 2015," said Scotiabank' economists Derek Holt and Dov Zigler. They said Poloz's remarks did not reinforce the bank's mild rate-tightening leanings, nor did it support the view that a rate cut is in the pipeline.   Continued...

Bank of Canada Governor Stephen Poloz prepares to speak before a parliamentary committee on Parliament Hill in Ottawa June 6, 2013. REUTERS/Blair Gable