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Stephen Poloz Makes First Speech

7 June 2013

Okay, we’re not sure if this was the new Bank of Canada governor’s very first speech, or if it was just the first one the public would have interest in. Either way, Stephen Poloz appeared before the House of Commons Standing Committee on Finance on Parliament Hill yesterday. While there he talked mainly about the low interest rates Canada has been enjoying for the past several years, and his plans on what to do with them.

Up until this point it was largely believed that Poloz would be keeping the interest rate where it was, at least until the July rate announcement. What he would do with them after that though, was anybody’s guess. The rate, as we just mentioned, has been historically low for years now. And an interest rate that’s kept at those bargain-basement lows can throw the economy out of whack. People start borrowing at mega speeds, they take on too much debt, and then we’re in a real bind when interest rates eventually raise.

But Poloz doesn’t see that happening.

“My concern is we do the right thing so this weak economy doesn’t last for a generation,” Poloz said to the Commons finance committee on Thursday. “For now, we don’t see that those risks from low rates are manifesting themselves in a threatening way.”

Derek Holt, economist at Scotiabank, picked up the speech and found it, if not surprising, much more positive and relaxed than former governor Mark Carney’s tone was in the past several rate announcements. Holt also believes that the warnings we’ve heard in those last few announcements might also be dropped altogether.

“A speech that is all about ‘nurturing’ and the Bank of Canada’s role in building confidence through this process suggest a policy leaning toward at least a less hawkish bank than under the last months of Carney’s tenure,” Holt said.

Poloz also proved himself to be a different governor when talking about private company’s cash reserves – something Carney also spoke of as “dead money” that should be invested. But Carney himself has since declared those reserves as “resurrected,” and Poloz agrees. He says those companies have “healthy balance sheets.”

“And that’s a good thing,” he says. “The process of recovery would be much more difficult if foreign demand is building, and our confidence gets up, and we don’t have the balance sheet available to do the job, then we have a different problem. One of the most important ingredients to getting the investment momentum we expect to see is having a healthy balance sheet and being ready.”

NDP finance critic Peggy Nash said that while it was clear that Poloz was trying to establish himself as a new name at the Bank, and one who would do business differently than Carney, she says that the majority of his speech was just to bring confidence to the Canadian people during the transition at the Bank.

His comments about the economy in general certainly fall within those lines.

“In effect,” he said, “the recession caused a significant structural change in the Canadian economy. In short, we need to see the reconstruction of Canada’s potential, and a return to self-sustaining, self-generating growth.”

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