November 1, 2016 / 4:11 PM / 2 years ago

UPDATE 2-Bank of Canada's Poloz says satisfied with messaging

(Recasts with Poloz comments on bank’s communication, analyst comment)

By Nicole Mordant

VANCOUVER, Nov 1 (Reuters) - Bank of Canada Governor Stephen Poloz said on Tuesday he was satisfied with the way the central bank communicated its last policy decision, despite the volatile reaction of markets, because it conveyed that the downside risks it warned about had solidified.

Poloz acknowledged the rocky reaction to the bank’s Oct. 19 rate decision and subsequent news conference, during which Poloz surprised markets with the news that policymakers had actively considered cutting rates but ultimately held them steady.

“I’m satisfied that in a relatively tricky situation with a lot of moving parts that both in our press release and in the subsequent remarks we were able to offer clarity on how we think about those things,” Poloz told reporters following a speech in Vancouver.

“Both the press release and the remarks indicated clearly that the risks that we highlighted in September had in fact crystallized... In the end, the market takes the information and runs with it and it is what it is.”

The Canadian dollar initially firmed after the Oct. 19 rate decision. But Poloz’s subsequent revelation that the central bank had “actively discussed” adding stimulus then sent the currency tumbling, drawing criticism from some market players.

Scott Smith, senior market analyst at Cambridge Global Payments, said on Tuesday that Poloz has little room to object to how markets respond to his communication.

“He can’t be viewed by market participants as being reactionary or necessarily caught off guard in terms of how the market responds to his actions or his thoughts,” Smith said.

In his speech to a Vancouver business group, Poloz said the bank had seriously considered raising its inflation target to give it more flexibility to cut rates, but decided unconventional measures provide more room to maneuver than previously believed.

Arguing in favor of the renewal of the inflation target at the midpoint of a 1-to-3 percent range, Poloz said pushing inflation up to 3 percent “might be quite difficult to do, and might require some significant economic fluctuations, given how well inflation expectations appear to be anchored at 2 percent.”

He also reiterated that the government is better suited to address threats like a hot housing market or high household debt than the “very blunt tool” of moving interest rates. (Reporting by Leah Schnurr and Andrea Hopkins; Editing by Tom Brown and Dan Grebler)

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