During Stephen Poloz’s first interest rate announcement as the new Bank of Canada governor, he was far less hawkish about interest rates and household debt than his predecessor, Mark Carney, ever was. But while Poloz might have a soft stance on those households at the moment there’s one area in which he and Carney agree – businesses are holding onto money, and it’s time they loosen up the purse strings to help out the economy.
Standing before the Oakville Chamber of Commerce yesterday, Poloz first commended households for taking on more debt during the recession years, and keeping this country afloat.
“Given the circumstances, it was a good thing that households had the capacity to expand their spending – this provided the necessary cushion from the worst effects of the global contraction,” he said.
As for whether or not those levels of too high for those households to maintain, Poloz stated that the Bank has “urged homeowners and other borrowers to do the arithmetic,” when it comes to their debt and to determine how to pay them off once interest rates rise “to more normal levels.”
He also stated that he’s “confident that this is exactly what people are doing.”
But, he says, households and consumers can’t do it alone, and it’s time that businesses stepped up and started investing, too. It’s a sentiment that was largely held by Mark Carney, and that had many wondering which side of the issue Poloz would find himself on.
Poloz stated, “Since the onset of the recession, there has been limited net creation of businesses.”
He also pointed to the fact that exports are currently $100 billion lower than what one would normally expect to see at this point in economic recovery.
“The group most profoundly affected has been manufacturing exporters, whose ranks have continued to shrink,” he said.
However he says, there’s more businesses than just the exporters and manufacturers, and he believes that it’s the corporations who now need to start investing.
“The good news is that the balances sheets of corporate Canada are healthy and the capacity to invest exists,” he says.
But, he says, he understands that businesses are a little gun-shy, especially after many of them are just getting back on their feet from the recession. He says the bank is there to help.
“By explaining the cross-currents at work in our economy, our projections for what’s ahead and our monetary policy response, we can help to heal business confidence.”