New Bank of Canada chief less explicit in rate-hike stance

OTTAWA (Reuters) - The new governor of the Bank of Canada said on Thursday that interest rates will rise one day, but he stopped short of repeating his predecessor’s explicit guidance on the likely need for rate hikes, rather than cuts, in the future.

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

In his first public appearance since taking the reins at the central bank on Monday, Stephen Poloz said he sees no immediate risk from current rock-bottom interest rates, although he did not want loose monetary policy to last for too long.

Many analysts had expected Poloz to be more dovish than previous Bank of Canada Governor Mark Carney, who stepped down last month after a year beaming out a clear message that the bank’s next move would be a rate increase.

The message from Poloz could be interpreted either way, the analysts said.

“Low (rates) for hopefully not too long gives you the outcomes you need to get through this crisis and then as the world unfolds we get back to normal, and that’s our outlook,” Poloz told the House of Commons Finance Committee.

“We don’t see evidence that those risks (of low interest rates) are manifesting themselves in a threatening way at this stage, but they’ll be carefully monitored, and that trade-off continues to be made as we go along.”

Not yet accustomed to Poloz’ folksy speaking style, some economists concluded he was holding the line on monetary policy while others detected a slightly more dovish tone.

“Overall, I don’t think we’re going to see a big change in stance from the Bank of Canada come July,” said Krishen Rangasamy, senior economist at National Bank Financial.

Poloz, who previously headed Canada’s export credit agency, has a first speech as governor on June 19 and his first rate decision in mid-July, both events where he may be able to put a clearer stamp on any policy priorities.

He said on Thursday that the central bank needed to “nurture” the economy through a phase he likened to postwar reconstruction and emphasized that inflation below the bank’s 2 percent target - it is currently at 0.4 percent - is just as much a concern as above-target inflation.

That provided fodder for those who think he’ll back away from any rate-hike talk.

“A speech that is all about ‘nurturing’ and the BoC’s role in building confidence throughout this process suggest a policy leaning toward at least a less hawkish BoC than under the last months of Carney’s tenure,” Scotiabank economists Derek Holt and Dov Zigler said in a note to clients.


Carney was the first central banker in the Group of Seven industrialized nations to raise rates after the global financial crisis, with three rate hikes in 2010. But the bank has held its main policy rate at 1 percent since then, the longest period of unchanged interest rates since the 1950s.

In April 2012, the bank again began signaling intentions to tighten monetary policy, and that bias remains in place, although some argue it has been so watered down in recent months that it has become almost meaningless.

Analysts in a Reuters poll published on May 23 predicted, on average, that the next interest rate increase will come in the fourth quarter of 2014.

Poloz sounded upbeat about the prospects for further growth in Canada and for the recovery in the U.S. housing market.

The Bank of Canada has long predicted that growth in Canada will be driven more by exports than by domestic demand, which fueled the quick recovery from recession.

Poloz said he first expected foreign demand to recover, followed by stronger export performance, improved confidence and then business expansion.

“This sequence may already be underway,” he said.

“We are now seeing signs of recovery in some important external markets, notably the United States and Japan, and there is continued growth in emerging-market economies.”

Additional reporting by Randall Palmer and David Ljunggren in Ottawa, and Alastair Sharp, Andrea Hopkins, Cameron French and Peter N. Henderson in Toronto; Editing by Janet Guttsman and Chizu Nomiyama