OTTAWA (Reuters) - Bank of Canada Governor Stephen Poloz defended himself against criticism on Tuesday that his surprise January rate cut unduly shocked markets and for failing to use measured language like his predecessor, current Bank of England chief Mark Carney.
Poloz also said the negative effects from the oil price shock would last longer than three or four months, but would begin to be “overwhelmed” after the first quarter by renewed exports and other positives.
In an appearance before the House of Commons finance committee, Poloz was grilled by a Conservative Party legislator over the decision to cut rates in January by 25 basis points to 0.75 percent, then keep them on hold in April despite Poloz calling the first quarter “atrocious.”
“Everybody follows your words very carefully, and I don’t know if you’re doing it by design, but the previous governor had his forward guidance policy but he was also extremely measured and aware that every single word he said was taken very seriously,” James Rajotte, the committee chair, told Poloz.
“Are you by design trying to shock the markets occasionally with these words...? Because I think it is having that effect.”
Poloz conceded in January the cut would catch some traders by surprise but it was necessary to move early because of the swift effect the price crash was having on oil-exporting Canada.
The market then began to price in another rate cut but the bank held tight in March.
“It’s certainly not our intent to surprise or to frighten people,” Poloz said on Tuesday.
The central banker said he characterized the first quarter as “atrocious” to assure the market that the Bank of Canada was taking this into account and would not therefore necessarily have to cut rates.
“We wanted markets to understand that we already believed that the quarter was going to look quite poor so, in that context, the markets would therefore not be doubling up on their bets that the Bank of Canada would need to do further actions,” Poloz said.
The Canadian dollar initially fell after his use of “atrocious” in late March, reacting also to weaker oil prices at the time.
Poloz said optimistic signals on exports, consumption and business investment lends confidence that the January cut, which it deemed “insurance” against the oil shock, would be sufficient.
Reporting by Leah Schnurr and Randall Palmer; Editing by Jeffrey Benkoe and Alan Crosby