Bank of Canada candor boosts credibility, throws markets

Fri Nov 11, 2016 4:49pm EST
 
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By Leah Schnurr

OTTAWA (Reuters) - The Bank of Canada has been puzzled at times, unsure at others, and not shy about saying what it doesn't know, a frankness that helps its credibility but has left markets struggling to adjust.

"I don't have to remind you how many sources of uncertainty we face," Bank of Canada Stephen Poloz said in Santiago on Friday, reiterating what has become the bank's candid assessment of puzzling times. [L1N1DC1I8]

Under Poloz's tenure, the bank has opened up and adjusted communications in ways that markets generally like, even if it comes with more volatility.

Since he took the helm in 2013, the bank dropped forward guidance that gives a direct hint on the next move in interest rates. It also put ranges around its U.S. and Canadian growth expectations, effectively broadening its forecast, and moved to a risk-management approach to monetary policy.

However, unlike its U.S. and British counterparts, the bank does not publish minutes of policy meetings, which would shed light on policy discussions and possibly show dissent or unanimity around decisions.

While including some frank language about what he does not know, Poloz's message has become more nuanced and often more difficult for markets to understand, if only because more information does not always add clarity.

"Markets like clear road maps to central bank policy," said Frances Donald, senior economist at Manulife Asset Management in Toronto. "What Governor Poloz has given us is a more complex and complicated road map."

Last month, a surprise admission by Poloz during a press conference that policymakers had considered cutting rates roiled the Canadian dollar, in part because no mention had been made of that option in the bank's statement hours earlier. [L1N1CP0BY]   Continued...

 
A man is reflected in a window while walking past the Bank of Canada office in Ottawa, Ontario, Canada, May 25, 2016. REUTERS/Chris Wattie