BoC rate cuts validated, but market still wary of Poloz's style

Thu Dec 24, 2015 12:29pm EST
 
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By Randall Palmer and Leah Schnurr

OTTAWA Dec 24 (Reuters) - When the Bank of Canada stuck its neck out with a completely unexpected interest rate cut in January in response to the oil price crash, markets and experts quickly questioned Governor Stephen Poloz's credibility and wisdom.

Eleven months and an additional rate cut later, Canada has been in and come out of a recession while oil has only continued to drop.

Analysts now say it was the right move to make but that markets are still not totally comfortable with Poloz's style.

"The lingering effect of it is the market and the analysts are still a little jumpy as to really trying to figure out where the bank is coming from at this point," said BMO Capital Markets Chief Economist Doug Porter.

"And that's effectively why the market's got about a 50-50 chance of another move priced in, because it really has no idea."

The Bank of Canada, unlike the U.S. Federal Reserve and many other central banks, does not vote but operates by consensus with no minutes.

This fueled questions after the January cut about how decisions are reached and whether Poloz was taking all views into account or acting as a lone cowboy.

The "Poloz reaction function" became a buzz phrase among frustrated traders trying to determine how Poloz would react to economic data and other metrics in setting monetary policy.   Continued...