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No Tiff at the Bank of Canada

May 04, 2013

In a surprise move the Federal Finance Minister chose Stephen Poloz, an economist and head of the Export Development Canada, to head the Bank of Canada. Tiff Macklem, the bank’s senior deputy governor, had been viewed as a logical choice to succeed Mr. Carney — providing continuity in monetary policy at a time of global economic uncertainty.

A native of Oshawa, Ontario, Mr. Poloz graduated from Queen’s University in 1978 with a bachelor’s degree in economics. He received a master’s degree in economics in 1979 and a PhD in economics in 1982, both from the University of Western Ontario. Mr. Poloz first joined the Bank of Canada in 1981, and occupied a range of increasingly senior positions over a fourteen year span, culminating in his appointment as Chief of the Bank’s Research Department in 1992. Mr. Poloz joined Export Development Canada in 1999 as its Chief Economist. He was appointed President and Chief Executive Officer of EDC in January 2011, a position in which he served until his appointment as Governor of the Bank of Canada.

While the Bank of Canada has not had to use quantitative or credit easing,it has kept interest rates low and has expanded its balance sheet. (Quantitative easing refers to outright purchases of financial assets funded by the expansion of the monetary base through the creation of central bank reserves, enlarging the central bank’s balance sheet.)


The changing of the guard at the BofC is political and it is hard to see a direct impact on the northern economy.

Mark Carney (with undoubted support of the federal government) has left rates low for an extended period even when it was possible to raise them. The upshot has been that consumer debt has exploded to the upside and the Bank has quietly expanded its bank’s balance sheet at the rate of $1 billion per month last year and $2 billion per month this year, changed monthly reporting to quarterly reporting (despite talking about transparency), and generally watched as we transformed from a nation of savers into one of debt driven spenders.

Of course, if the Bank of Canada raised rates, capital would flood into Canada precipitating a rise in the Canadian dollar. A higher dollar harms exports and worries the federal government that wants to be reelected on the basis of ‘sound fiscal managers’. So the government likely wants the Bank of Canada to be quiescent and keep rates low and the dollar low.

Canada’s fiscal situation is much better than its neighbor to the south (leaving out Ontario and Quebec). The US has not yet mustered the political will to tackle its fiscal imbalance and opts to rely on Fed money printing instead.

The continuance of low interest rates is likely for the foreseeable future. The northern economy is under threat from lower commodity prices much more so than Bank of Canada actions.



Source: Adrian Wyld/The Canadian Press